A Risk of Stagflation?

Michael Rudd, CFA | President, CEO & Portfolio Manager

We have written in the past two issues of the Investment Outlook about recently published high inflation data, primarily in the United States. We thought that we would expand on this discussion by adding a second element. Many investors have expected a soft landing of the US economy and we have seen a significant slow down from where the economy was a year or so ago. This is positive; however, most investors were not expecting a slow down at the same time as an uptick in inflation. A stagnant, slowing or lack luster economy, coupled with rising inflation would not be positive. This situation is called stagflation.

  • We have published data from Figure 1 previously and added one more piece of data that indicates more inflationary pressure. The drop in inflation metrics has stalled (grey) while, at the same time, wage pressure has increased (blue). Not great news when the economy is also slowing.
  • However, the US Jobs report was released today and it was very weak. The US Quit Ratio was also released and has come down, as have total job openings. A weaker employment market, given the size of the consumer in the US economy, is a significant argument against “the higher for longer” rate argument.


  • In Figure 2, we present expectations from manufacturing companies around the world, as well as new order data. After a brief upsurge in the fall and winter of 2023, it looks like expectations have turned negative again for North America. Europe has unfortunately been in contraction since mid-2022 and does not look like it is returning any time soon. India remains the sole steady outperformer.

“This means that” we only want to highlight this as something that we are monitoring. We would need more confirming data to formally adjust our thesis. As always, we will continue to watch this potentially developing risk.

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