A Central Banker's Nightmare: Inflation and Slow Growth Together

[RamboLiberal]

http://online.wsj.com/public/article/0,,SB109260622463991800,00.html?mod=todays%5Ffree%5Ffeature

One of the dirtiest words in the economic lexicon is making the rounds again: stagflation.

Defined as a noxious blend of stagnant growth and rising prices, stagflation last appeared in force in the 1970s, when it bedeviled U.S. policy makers and gradually degraded the standard of living of average Americans. Economists long thought a repeat to be extremely unlikely.

But now, they are starting to worry again. The fundamental problem: Oil prices are kicking up inflation across the world, at precisely the same time that economic growth appears to be slowing. If oil prices keep climbing, and inflation rates exceed growth rates, some economists say the U.S., Asia and other regions could face a troubling scenario in which policy makers have to fight some of the same demons that plagued the U.S. back in the days of disco.

"Oil at $45 a barrel is a stagflation problem," warned economists at UBS Ltd. in a recent research report. By their reckoning, sustained prices at that level would slow global growth rates by almost half a percentage point in 2005 and by about one percentage point in 2006. Perhaps more important, such prices would push inflation up by about the same amount -- giving the world its first taste in years of what stagflation can be like.

[trotsky]

1. And to cure stagflation,

you have to make things worse before they'll get better. Volcker did it by intentionally steering the country into a recession, then curing the recession by dropping interest rates. Of course "Reaganomics" got the credit for the economic expansion of the 80s but if Volcker hadn't whupped stagflation, Reagan probably would have been a one-termer.

[PROGRESSIVE1]

3. True!!!

[htuttle]

2. Stagflation is the inevitable future of a petroleum based world economy

Prices WILL go up. Those higher prices WILL slow down economic growth.

The direction will NOT change until we cure the oil addiction.

[maxsolomon]

4. maybe economic GROWTH is the problem

see the new adbusters for evironmental economics.

when the oil's gone, growth will be out of the question.

[Fovea]

5. If we are still an oil based economy by peak we are cheney'd

We need to be changing to as many sources as possible and really throwing ourselves into research, no matter what the consequences for afew rich Cheneys.