Stagflation Will Be Back

On today’s show we are talking about a parallel between present day circumstances and 1973. The mid 1970’s were characterized by the simultaneous surge in inflation and economic contraction. These were events that were up until that point considered to be mutually exclusive. 

The embargo didn't just cause a temporary blip; it changed the structural behavior of the U.S. economy. Even after the embargo ended in 1974, inflation expectations remained high. 

As prices rose, workers demanded higher wages to keep up. Employers then raised prices again to cover the higher wages, creating a self-reinforcing loop of inflation.

If the oil supply remains constricted for more than a few weeks, I predict that stagflation will be upon us. It’s a remake of the same movie with different actors.