Stagflation Risk: Stephen Roach Latest Economist to Sound Alarm on ’70s-Style Inflation

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‘One supply chain glitch away from stagflation,’ he says

Stephen Roach is the latest high-profile economist to sound the alarm on the risk of the United States facing 1970s-style stagflation—where economic growth falls, but inflation stays stubbornly high.

The former Morgan Stanley Asia chairman told CNBC on Sept. 29 that the energy price spike is inflicting major damage to struggling supply chains and that he believes that the United States is “one supply chain glitch” away from a ’70s-era bout of stagflation.

His remarks come as gasoline stations are running dry in the UK, power costs are surging in the EU ahead of winter, and prices for oil, natural gas, and coal are rising.

In the interview, Roach spoke of supply chain bottlenecks shifting from one part of the supply chain to another rather than easing, a situation he called “strikingly reminiscent of what we saw in the early 1970s” and one that “suggests that inflation will stay at these elevated levels for longer than we thought.”

“We were sort of one supply chain glitch away from stagflation,” Roach said. “That seems to be playing out, unfortunately.”

Roach took aim at the Fed’s easy money policies, arguing that they were excessive, particularly in the face of persistent inflationary pressures.

While Fed officials have maintained that the current bout of inflation is temporary and will abate once supply chain dislocations abate, they’ve increasingly started to acknowledge that inflation has been stickier than previously thought.

“This is not a situation that we have faced for a very long time, and it is one in which there is a tension between our two objectives. … Inflation is high and well above target, and yet there appears to be slack in the labor market,” Federal Reserve Chair Jerome Powell said at a European Central Bank forum, with his remarks appearing to point to a stagflationary dynamic.

Surging prices have been a headline theme amid the economic recovery, rising faster than wages and eroding the purchasing power of Americans.

By Tom Ozimek

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