Posted by Frank James at 1:52 pm CDT
Earlier this month, my colleague Bill Neikirk blogged about the potential for a return of stagflation, the dreaded twin curses of a stagnant economy and rising inflation.
As he wrote then, it would premature to say we’ve arrived at the point of stagflation. But today’s gross domestic product report which indicates that the economy grew during the second quarter at less than half the first-quarter rate did at the same time an important inflation gauge came in higher than some analysts expected, put a momentary stagflationary shiver through me.The 2.5 percent growth rate for the second quarter is actually good news of a sort. It’s solid, sustainable growth. Yet it takes pressure off Federal Reserve Chair Ben Bernanke to increase short-term interest rates once again when the Fed meets Aug. 8.
That’s why the Dow Jones Industrial Average is up more than 130 points as I write this. The financial markets believe it’s more likely the central bank will take a breather on the whole inflation-fighting campaign, at least for a little while.
But within that 2.5 percent growth rate was something economists hadn’t expected. We’ve all seen the for-sale signs that have been up for months in front of houses that have languished on the market. Many economists thought that drop in residential investment would be offset by businesses making capital expenditures on things like machines and software. But those investments fell too.
Meanwhile,an important inflation measuring stick, the price index for personal consumption expenditures, excluding food and energy, the so-called core rate, rose by 2.3 percent for the second quarter. So maybe Bernanke will believe he has to soon raise short term rates again after all.
The numbers give worriers something to stew about, too.
