Stagflation Arrives To America

 The following chart shows the GDPNow estimate for 3Q2021 real GDP (annualized) now at 1.3% vs CPI inflation at 5.4% for September. I remind readers that GDPNow is an algorithmic estimate for the most current, upcoming GDP number. It is produced by the Atlanta Fed without using any economists’ “guesstimates” or, even worse, biases - political or otherwise.

GDPNow Growth Estimate Way Below Inflation

Assuming the GDPNow estimate proves accurate (a pretty good assumption given its excellent track record), the chart shows that stagflation has arrived to the US - and in spades.

Next stop in the stagflation process? Rising labor costs, now growing at the fastest rate in 20 years - see below, another helpful interactive data service from the Atlanta Fed.   And once inflation passes into wages it gets pretty much “baked in”. 

It looks increasingly certain that inflation is not transitory and that stagflation is upon us, despite Mr. Powell’s dictums.The question now is, how long will will the unwelcome guest stay? 

IMHO, for as long as Fed and Treasury keep stocking the buffet with QE and zero interest rates, stagflation will be with us for the duration.