Global Stagflation Becomes a Real Possibility

I've recently written about the concept of stagflation, but for those who are new to it, the idea is relatively simple. Stagflation is essentially stagnate or down economic growth period combined with inflation. In general, it's a recipe for higher interest rates, general economic despair, and rising alcohol sales. Recent inflation numbers out of the US suggest that we could very much be entering a period of stagflation aided by the Fed's short term interest rate cuts (which could drive up inflation without having the desired stimulus on general spending that the numbers nerds are looking for). Now, it looks like China is also facing the specter of inflation.

But in the Sino case, inflation is nearing out of control levels. According to European Leaders Blog, "Inflation in China hit an 11-year high in January, as rising prices and adverse weather took their toll. The country's inflation rate rose to 7.1 per cent, up from the December figure of 6.5 per cent." From a global sourcing perspective, if prices continue to rise in China -- as many analysts predict they will -- it will put "sourcing operations under increasing pressure." Not to mention driving up the China price -- and the hence the actual price -- for imports from food products to clothing to automobiles for consumables across the US. A cycle of stagflation? Let's hope not, but the signs are not looking good.

- Jason Busch

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