Richmond Fed surveys show stagflation’s return
By Norman Leahy | Tuesday, August 23rd, 2011 | Policy, VirginiaThe Richmond Fed has released its Fifth District Surveys of manufacturing and service sector activity and the outlook for both is rather bleak. Output is falling, as are employment and wages. But what’s showing signs of growth? Inflation.
From the manufacturing report, we get this somber news:
District manufacturers reported that raw materials prices increased at an average annual rate of 4.16 percent in August — up somewhat from their 3.41 forecast in July. Finished goods prices rose at a 1.46 percent pace — also somewhat above July’s reading of 1.18 percent.
Looking forward, respondents expected that the prices they pay will advance at a 4.54 percent pace, somewhat higher than July’s reading of 4.35 percent. Additionally, contacts looked for finished goods prices to increase at a 3.35 percent annual rate, also slightly above last month’s expected rate of 2.97 percent.
And from the service sector survey:
Price change in August sped up slightly, with overall service sector price acceleration at an annualized 1.03 percent rate in August; last month’s rate was 0.79 percent. Retail price growth moved ahead at a 1.66 percent clip, following July’s 0.75 percent pace. At services firms, the pace edged up to 0.93 percent compared to 0.86 percent a month ago. For the six months ahead, survey respondents looked for price change of 1.48 percent; in July, their outlook was for 1.34 percent. Separately, retail merchants looked for prices to increase at a 2.08 percent rate during the next six months, while non-retail services providers expected a 1.39 percent pace. A month ago, retailers expected a 1.20 percent rate of increase and services providers anticipated price acceleration of 1.40 percent.
Some observers, like Harvard’s Ken Rogoff, believe inflation is the one tool that could right the national economy:
…the only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery.
Savers have already taken a sustained hit from falling interest rates and, with the Federal Reserve’s explicit policy of maintaining a zero interest rate target through mid-2013, they have little hope for relief. So why not add to their misery with a bit of inflation? And as for debtors…well. We’ve gone out of our way to keep them whole, to little effect. So let’s redouble our efforts.
The Richmond Fed’s surveys, though, indicate that inflation is already here and retailers and manufacturers see it getting worse. Which means we may imbibe Mr. Rogoff’s elixir no matter what.
And for history buffs, what do you call rising inflation and weak economic growth? If you answered “stagflation,” the monster everyone assumed had been slain in the early 1980s, you win…but in the long run, we all lose.
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Norm Leahy has written about Virginia and national politics online since 2002, beginning with One Man's Trash (OMT), and continuing through Bacon's Rebellion (both the blog and the e-zine), Sic Semper Tyrannis, NBC12's Decision Virginia, Richmond.com and Tertium Quids. He is the chief blogger at "The Score" and a producer of "The Score" radio show as well as being a Washington Examiner contributor.
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7 Responses to "Richmond Fed surveys show stagflation’s return"
Ken Rogoff, an all seeing Harvard prof, says “the only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery.”
This worked fabulously in the Carter administration. Economic growth soared ever higher and the nation prospered as inflation swept through a grateful nation. William Buckley was so wrong about being governed by Harvard professors. And what’s not to love about benefiting debtors. That’s the Dem’s constituency and it’s increasing as they wipe out real estate and the stock market. Obama would hardly be the one to naysay a Harvard professor since he imitates one daily when he isn’t acting like a Chicago machine alderman.
Gosh I’m losing it. I forgot to mention the biggest debtors of all namely the “Blue States” and our woebegone Treasury. If they can just get inflation up to 100000000% for One day they could pay off the entire US debt with some preprinted checks. Then we would go back to “normal” with some new currency. What a concept.
Will a viable candidate that is actively channeling Ronaldus Magnus please step forward as this Carter redux Part 2 isn’t working. Obama has been borrowing bits and pieces of the Carter “malaise” speech where after blaming corporations, Wall Street, OPEC and business he blamed the American people. Remember this?…
“I ask Congress to give me authority for mandatory conservation and for standby gasoline rationing. To further conserve energy, I’m proposing tonight an extra $10 billion over the next decade to strengthen our public transportation systems. And I’m asking you for your good and for your nation’s security to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel. Every act of energy conservation like this is more than just common sense — I tell you it is an act of patriotism.” (a “Bidenism” in the last sentence)
And I’m waiting for Obama to say this:
“The symptoms of this crisis of the American spirit are all around us. For the first time in the history of our country a majority of our people believe that the next five years will be worse than the past five years. Two-thirds of our people do not even vote. The productivity of American workers is actually dropping, and the willingness of Americans to save for the future has fallen below that of all other people in the Western world.”
and this…
“As you know, there is a growing disrespect for government and for churches and for schools, the news media, and other institutions. This is not a message of happiness or reassurance, but it is the truth and it is a warning.”
Lots to look forward too…. but we’ve heard it all before.
too gloomy. Stagflation is GOOD. Everyone gets hurt and Barry will be as popular as Libyan leader Muammar Qaddafi in a years time.
Remember Barry, Mike and other democrats want to give the UN 76 trillion dollars to “save the planet” from man made CO2. Climate parasites and charlatans have been devouring billions in US taxpayer dollars, year after year, plus billions more in corporate shareholder cash, activist foundation funds and state government grants. The laws, mandates, subsidies and regulations they advance have cost taxpayers and consumers still more billions for “alternative” energy and other schemes that send prices skyrocketing, kill jobs, and reduce health and living standards.
It is worth some stagflation to get rid of the democratic job killers.
Ha Ha ha. Obama will do just fine with 20% real unemployment, recession, derision from our foreign adversaries, soaring debt, sinking home prices and endless vacations. So we just have to endure endless stagflation so he’ll be unpopular at last with the public, who think all the rest is no big deal.
A couple of points. We are not anywhere near stagflation. Conservatives have been crying inflation fears for two years, and those fears are unfounded. The Federal Reserve is still paying Interest on Reserves (a deflationary policy) and as long as they are doing that it’s going to be very hard to have any inflation, let alone high inflation in my opinion.
Second, inflation is the rise in the general price level, not a rise in prices in certain sectors. Raw materials and metals have been increasing in price for some time now which probably accounted for alot of the manufacturing price increase (my quick guess), that’s not inflation.
Third, the current TIPS spread between 10 year Treasury Notes and 10 year Treasury Inflation Protected Securities is 2.18%. That is the expected inflation that the general market is predicting right now, and pretty much our most accurate gauge at expected inflation. If inflation is actually high, you have to explain how the enitre TIPS market is only pricing in an expected inflation rate of 2.18%. I have yet to see high inflation claims reconciled with the TIPS market.
Furthermore, we just went through a period of 2 years where we had zero to negative inflation (also called delation). That’s just as bad, and now that we are 8% below prior trend in Nominal GDP. Saying we need higher inflation probably isn’t the best choice of words, but there is a pretty good argument that we need higher Nominal GDP, and with output staying the same, it means higher inflation for a period of recovery.
As a case study, look at the recovery in the 1980′s under Reagan. We bounced back very quickly, and inflation was 8-10% for a short period of time (about 1 year I believe). It’s very possible, and even probable, that that 8-10% inflation helped offset the prior year’s recession and bring recovery quickly, and conservatives need to be open to this idea in our current economy.
If inflation reaches 10%, and unemployment is still around 10%, then warnings of Stagflation would be appropiate. But
with 9.2% unemployment, and 2.18% expected inflation we just aren’t near stagflation.
Ryan,
If you are going to pontificate on stagflation at least remember that inflation is compared against GDP, Not unemployment. And I’m so glad that you have the sinecured academic’s attitude and definition of inflation as in … the price of truffles fell last month offsetting the rise in gas prices.
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