Rising Risk of Stagflation is a Reason to Remain Vigilant

With inflation numbers remaining relatively high, the risk of stagflation is starting to concern economists. What is stagflation? It’s characterized by slow economic growth and relatively high unemployment – or economic stagnation – that is accompanied by rising prices.

Basically, it’s a stagnating economy combined with increasing inflation. If you’ve noticed the cost of almost everything increasing, you are seeing the effects of inflation. But why would the economy be in a period of stagflation?

Several factors are affecting the economy, including the COVID-19 delta variant, strained supply chains and the rising cost of food and fuel. As of October 10, there were 87 vessels anchored and waiting to be unloaded at the ports of Los Angeles and Long Beach. For reference, on average, there is rarely more than one ship anchored at any normal given time.

That’s not to mention the microchip shortage causing massive delays and production cuts for most auto and electronics manufacturers. If you’ve ordered any appliances or tried to buy a car in the last 12 months, you’ve likely seen the direct impact of this shortage.

What does this mean for you? Economists aren’t pressing the panic button on stagflation yet, but they are keeping a close eye on multiple economic factors. We’re currently seeing higher-than-normal prices almost across the board, including for groceries, gas and cars.

Morgan Stanley strategist Andrew Sheets recently wrote: “If ‘stagflation’ means ‘the 1970s,’ a time of wage-price spirals and high unemployment, this clearly isn’t it.” For the time being, most economists still think inflation will be transitory and that any dips in the market represent a good buying opportunity.

We at the Kanai Wealth Management Group are keeping a close eye on many indicators and watching for any red flags that could result in an economic pullback. If analysts are correct, prices of goods and services should drop in the coming months.

However, we prepare for the worst and hope for the best. There is a fair amount of uncertainty in the market and economy. To be safe, don’t anticipate costs dropping anytime in the immediate future, especially with the holiday season coming up. Higher prices and delays on shipped items could be with us for some time.

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