EMEL AKAN is a senior reporter for The Epoch Times in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan.
Emel Akan
Signs of Stagflation
A recent small-business survey reveals several signs of stagflation
FREDERIC J. BROWN/AFP VIA GETTY IMAGES
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ome inflation watchers have been on the lookout for signs of peak inflation, anticipating that the U.S. consumer price index will finally begin to trend lower after soaring to a fresh 40-year high in March. However, the latest data has disappointed them. A recent small-business survey and sky-high wholesale prices “telegraphed higher-for-longer inflation in a weakening stagflationary environment,” economist and market strategist Ed Yardeni of Yardeni Research said in a recent report. “We are still expecting inflation to peak by June or July, but higher inflation for longer is what the latest batch of price indicators is showing,” he wrote to clients. Stagflation is defined as the mix of slow economic growth along with high inflation and a high unemployment rate. The March survey of small-business owners conducted by the National Association of Independent Business discovered a slew of stagflationary trends, according to Yardeni. Inflation has surpassed “labor quality” as the most pressing issue facing U.S. small-business owners, with 31 percent citing rising prices as their top concern—an increase of 5 percentage points from February and the highest reading in 41 years. The survey found that a record 72 percent of small-business owners raised their selling prices, while half of them plan to continue to hike prices. Price increases were most common in wholesale, construction, agriculture, and retail sales. The percentage of respondents expecting to increase worker compensation stayed at a record high of 28 percent. The proportion of business owners
Small-business owners remain worried about their future business conditions, owing to inflation, a persistent labor shortage, and supply chain disruptions. expecting better rather than worse business conditions in the next six months fell by 14 points to a net negative 49 percent, the lowest figure ever recorded in the 48-year-old survey. Small-business owners remained worried about their future business conditions, owing to inflation, a persistent labor shortage, and supply chain disruptions. This might explain why the percentage of business owners wanting to grow their workforce has dropped since August, according to Yardeni. “One word comes to mind to describe this sour economic outlook: ‘stagflation,’” he said. The latest Producer Price Index (PPI) data also show no evidence of inflation peaking. The index, which tracks the changes in the price of goods sold by manufacturers and serves as a leading indicator of consumer price inflation, rose by an
annual 11.2 percent last month. This was the fastest pace in the history of the data series, which began in 2010. A strong increase in producer prices has shattered hopes that inflation may moderate in the coming months, according to Scott Anderson, chief economist of Bank of the West. “This is the largest monthly jump on record for producer prices and was broad-based, revealing persistent early-stage inflationary pressures that will continue to feed through to consumer prices,” Anderson said in a recent report. This may increase the need for the Federal Reserve to take vigorous action to reduce inflation, he said. Wall Street has been buzzing with talk of a recession in recent weeks, as monetary policy tightening has heightened predictions of a slowdown in growth. Economists have reduced their growth projections for 2023. Stagflation is a source of concern not only in the United States, but around the world. Stagflation expectations rose to 66 percent, the highest level since 2008, according to Bank of America’s closely watched global fund manager survey in April. For the next few months, inflation will stay “uncomfortably high,” according to Desmond Lachman, economist and senior fellow at the American Enterprise Institute. High oil prices may ease, especially if the Russian war ends and the Chinese economy slows because of its “zero-COVID” lockdown measures, he told Insight. But current wage pressures and a lag in the time it takes for higher rents to show up in the housing component of the consumer price index, which has a weight of about 30 percent, will keep inflation high. The U.S. economy might be “in a dreaded state of stagflation” by the November elections, Lachman said. I N S I G H T April 22–28, 2022 47
