{"id":67898,"date":"2025-08-14T02:07:11","date_gmt":"2025-08-14T02:07:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/67898\/"},"modified":"2025-08-14T02:07:11","modified_gmt":"2025-08-14T02:07:11","slug":"what-is-stagflation-and-is-the-us-heading-for-it","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/67898\/","title":{"rendered":"What Is Stagflation and Is the US Heading For It?"},"content":{"rendered":"

\"\" <\/a>AI-generated image.<\/p>\n

In the lexicon of economic afflictions, \u201cstagflation\u201d is one of the bad ones. The term (a portmanteau of \u201cstagnation\u201d and \u201cinflation\u201d) was first popularized by British politician Iain Macleod to describe an economy\u2019s worst-case scenario: a debilitating combination of stagnant economic output and relentlessly rising prices.<\/p>\n

In plain terms, it\u2019s the worst of both worlds. And according to a major 2025 report, the US is dangerously close to one.<\/p>\n

Stag-what?<\/p>\n

The term \u201cstagflation\u201d was coined in the 1960s, but it was the 1970s that burned it into public memory. Back then, oil shocks, runaway prices, and rising joblessness shattered the economic playbook. The heart of stagflation is kind of a Catch 22<\/a>: the standard tools for fighting inflation can deepen stagnation, and the tools to spur growth can fuel inflation. You can end up making one problem worse in the process of fixing the other. This can push a fragile economy into a deep recession, creating a seemingly inescapable policy trap.<\/p>\n

Is the US truly headed down such a terrible path?<\/p>\n

Several economists, spearheaded by Nobel-winning Paul Krugman seem to think so. Except this time, it\u2019s not the economy itself that\u2019s bad; it\u2019s what\u2019s coming from its leaders<\/a>.<\/p>\n

\u201cWhen Donald Trump announced his Liberation Day tariffs on April 2, many economists declared that the economy was headed for stagflation, with a number outright predicting recession. Looking back over my own posts, I was a bit more cautious. Specifically, I had and have no doubts about the flation aspect, but was less sure about the stag.<\/p>\n

At this point, however, the data really are looking increasingly stagflationary,\u201d Krugman wrote in a recent Substack post<\/a>.<\/p>\n

Market reports are uncharacteristically gloomy. One recent survey found that 7 in 10 investors<\/a> feel most stocks are overvalued and the economy is becoming \u201cstagflationary.\u201d The White House, unsurprisingly, dismissed this and even called Krugman a \u201cderanged bum<\/a>.\u201d Of course, having a Nobel doesn\u2019t necessarily mean you\u2019re right, but randomly insulting economists is rarely a good sign.<\/p>\n

What Does the Data Say?<\/p>\n

In the United States, the data doesn\u2019t yet match the full stagflation profile, but it\u2019s inching closer, and it\u2019s also challenging to read. <\/p>\n

Inflation is sticky: the Consumer Price Index rose 2.7% in June 2025<\/a>, with the Cleveland Fed forecasting 2.86% for August. Core inflation, which strips out volatile food and energy prices, is even higher at 2.9%. That\u2019s not a tragedy, but it\u2019s significantly above the Federal Reserve\u2019s 2% target \u2014 and the International Monetary Fund expects it to stay there for some time.<\/p>\n

Growth is harder to read. After contracting by -0.5% in the first quarter, GDP bounced back at a 3% annualized rate in the second. But that rebound was accompanied by a drop in imports, and much of that growth came from investments in AI data centers<\/a>.<\/p>\n

The saving grace is the labor market. Unemployment is just 4.2%, a far cry from the 9\u201310% joblessness that defined the late 1970s and early 1980s. This is one of the main reasons economists are reluctant to declare stagflation in the U.S. just yet. For now, that means the U.S. is flirting with stagflation, not living in it.<\/p>\n

But even the job market isn\u2019t rosy. In early August, Trump abruptly fired the head of the Bureau of Labor Statistics after a weaker-than-expected employment report. He accused the agency of producing \u201crigged\u201d numbers but didn\u2019t provide any evidence to support his accusation. In fact, most economists just believe Trump fired the head because he didn\u2019t like the numbers.<\/p>\n

\u201cTrump is firing the messenger because he doesn\u2019t seem to like jobs numbers that reflect how badly he\u2019s damaged the economy,\u201d said Lily Roberts, managing director for inclusive growth at the Center for American Progress, a thinktank, for The Guardian.<\/p>\n

That\u2019s far from the only concerning sign coming from Trump and his administration.<\/p>\n

Trumponomics<\/p>\n

\"\" <\/a>AI-generated image.<\/p>\n

Donald Trump\u2019s push for aggressive protectionism and hard-line immigration enforcement has become central to the current stagflation debate. His April 2025 \u201cLiberation Day\u201d tariffs rolled back nearly a century of trade liberalization. They push average tariff rates to levels last seen under the 1930 Smoot\u2013Hawley Act. This 1930s act is eerily similar to what Trump is apparently trying to do, and despite appearing successful initially, it turbocharged the Great Depression<\/a> and is widely considered an economic disaster.<\/p>\n

In an economy where imports account for three times the share of GDP they did in 1930, those tariffs create a direct price shock. Economists across the spectrum agree: tariffs act like a targeted sales tax, raising costs for consumers and businesses unless foreign suppliers absorb the hit. That isn\u2019t happening. Import prices, even excluding tariffs, have gone up.<\/p>\n

At the same time, Trump\u2019s stepped-up deportations are shrinking the foreign-born workforce, disrupting labor-heavy sectors like agriculture and construction. The result is a one-two punch: higher prices from costlier imports and reduced output from labor shortages \u2014 a textbook supply-side squeeze that drives inflation while slowing growth. Paul Krugman has described this as \u201cclassic stagflationary shock\u201d territory, warning that these policies, if sustained, could entrench higher inflation just as economic growth begins to falter.<\/p>\n

A Volatile Mix<\/p>\n

The political layer of things is equally significant. Trump\u2019s recent firing of the Bureau of Labor Statistics chief after a soft jobs report raised fears that official data could be politicized; or rather, to put it bluntly, manipulated. That would make it harder to track the economy accurately at a moment when reliable numbers are essential for diagnosing and responding to stagflation risks.<\/p>\n

Together, the tariffs, immigration crackdown, and political pressure on statistical agencies form a volatile mix: policy-driven supply shocks compounded by uncertainty about whether the U.S. can respond effectively if stagflation takes hold.<\/p>\n

For now, 2025 is not a replay of the Great Stagflation, but the warning signs strong. The very fact that we\u2019re considering this as a possibility is concerning. For now, the most important variable to watch is not a single data point like GDP. It\u2019s whether the public still believes policymakers can keep prices stable. Once that faith is lost, history shows, the economy can fall off a cliff.<\/p>\n","protected":false},"excerpt":{"rendered":"AI-generated image. In the lexicon of economic afflictions, \u201cstagflation\u201d is one of the bad ones. The term (a…\n","protected":false},"author":2,"featured_media":67899,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,548,46,135,33841,3277],"class_list":{"0":"post-67898","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-economics","12":"tag-economy","13":"tag-inflation","14":"tag-stagflation","15":"tag-trump"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/67898","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=67898"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/67898\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/67899"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=67898"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=67898"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=67898"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}