According to a front page article in the Wall Street Journal, I'm not the only one concerned about the threat of stagflation -- but I'm pleased to say I beat the WSJ to it by more than a month. (Check out my original post here, and next time, maybe you'll listen! ;-)
Mind you, I don't expect an exact repeat of the stagflation of the 1970s because I don't see much chance of a wage-price spiral. Back then, we still had unions capable of negotiating higher wages when prices went up. Just the same, keeping labor costs low won't necessarily hold inflation down -- not in a global economy where we are so heavily dependent on imports. Inflation in China is running at 7.5%, which will spill over into the cost of goods sold here, and the weakness of the dollar will continue to push up the prices of imported goods.
When higher production costs from rising commodity prices and lower demand due to recession combine to threaten CEO annual bonuses, the prices of many products will be increased just to maintain corporate profit margins -- and in industries where competition is limited, the trick will work. We'll still buy food and gasoline and electricity, and most of us will hang on to our cell phones, cable TV, and internet access.
Let's see what Ben Bernanke has to say next week.