For Americans of a certain age, it conjures memories of painfully long lines at gas stations, shuttered factories and President Gerald Ford’s much-ridiculed “Whip Inflation Now” buttons.
Cars line up in two directions at a gas station in New York City on Dec. 23, 1973. An unhappy confluence of events has economists reaching back to the days of disco and the bleak high-inflation, high-unemployment economy of nearly a half-century ago. No one thinks stagflation is in sight. But as a longer-term threat, it can no longer be dismissed.
For now, economists broadly agree that the U.S. economy has enough oomph to avoid a recession. But the problems are piling up. Supply chain bottlenecks and disruptions from Russia’s war against Ukraine have sent consumer prices surging at their fastest pace in decades. Mark Zandi, chief economist at Moody’s Analytics, has his own rough guide: Stagflation arrives in the United States, he says, when the unemployment rate reaches at least 5% and consumer prices have surged 5% or more from a year earlier. The U.S. unemployment rate is now just 3.6%.
Somehow, reality hasn’t proved so straightforward. What can throw things off is a supply shock — say, a surge in the cost of raw materials that ignites inflation and leaves consumers with less money to spend to fuel the economy.Saudi Arabia and other oil-producing countries imposed an oil embargo on the United States and other countries that supported Israel in the 1973 Yom Kippur War. Oil prices jumped and stayed high. The cost of living grew more unaffordable for many. The economy reeled.
Critics also blame President Joe Biden’s $1.9 trillion stimulus plan of March 2021 for overheating an economy that was already hot. The Ukraine war made things worse by disrupting trade in energy and food and sending prices up. At the same time, inflation has been eroding Americans’ purchasing power: Prices have risen faster than hourly pay for 13 straight months. And the nation’s savings rate, which soared in 2020 and 2021 as Americans banked government relief checks, has fallen below pre-pandemic levels.
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