Stagflation, Or Just a Good Ol' Recession?

Brian Doherty | February 26, 2008

Might there be a little something to worry about in the Federal Reserve's recent let-er-rip attitude toward cutting interest rates? See the latest inflation news from the Wall Street Journal:

U.S. wholesale prices surged in January and core inflation also climbed above expectations, according to more data revealing price pressures amid the economic slowdown.

The producer price index for finished goods rose 1.0% on a seasonally adjusted basis after a 0.3% decrease in December, the Labor Department said Tuesday. Originally, prices in December were estimated down 0.1%.

The core index, which excludes food and energy items, rose 0.4% last month, seasonally adjusted. It rose 0.2% in December.

Wall Street expected smaller price increases.....

In the 12 months ending in January, prices climbed 7.4% on an unadjusted basis. In the 12 months ending in December, prices were up 6.3%. The 7.4% climb is the largest since 7.5% in October 1981.

Analyst Paul Kasriel says it ain't stagflation (although a bunch of people quoted in the New York Times and Wall Street Journal might disagree)--just a natural and predictable start-of-recession phenomenon, with inflation lagging the slowing of GDP growth.

A reason roundtable on the Federal Reserve, from November 2006, featuring, among others, Milton Friedman and Ron Paul.

In possibly not unrelated commentary, see some recent goldblogging from me and Matt Welch.