With oil, clothing, food, and utility prices on the rise, the cost of living is going up for all of us. Prices at the pump are now topping $3.30, and some analysts see $4 to $5 gasoline by summer. Combined with 9% unemployment, it’s a disaster scenario. Welcome back the 1970’s Carter era stagflation.
Let’s look at each element of the above hypothesis and delve into some more detail. First, there was inflation worry with the U.S. Treasury printing money like it’s going out of style to begin with. Combine that with the unrest in virtually all of the middle east, and the resultant impact on oil prices, it’s a combination that is sure to drive the cost of living through the roof. Increases in oil prices affect much more than the cost to get to and from work, if you are lucky enough to have a job. Gasoline and Diesel fuel prices drive the costs of all goods– fertilizer prices go up and it costs more to produce food. Transportation prices go up, and the cost of getting food to your local grocery store goes up. Same goes for just about every good you can think of.
Now let’s look at the truth behind the unemployment figures… Companies have shed countless jobs, and although the overall employment rate appears to have increased, many people have accepted jobs where they are making much less than they were before. Bonuses are not being paid like they were. independent contractors and the self-employed, who arent part of the unemployment data are either unable to pay their bills, or just scraping buy. What that all spells is a stagnant, lackluster recovery, regardless of the current bubble of exhuberance that Wall Street finds itself in.
It’s still good strategy to reduce debt levels and save whenever possible. Make sure you plan and take advantage of every law, every bit of tax savings, and every bit of debt reduction you can– It’s my belief that we still have several more months of storms before we see the sunshine, and we are going to face another several years of stagnant growth and sacrifice. Stagflation was defined in the 70’s as “high unemployment coupled with high inflation”. Folks, I think we are looking at an era of S-2… the second round of stagflation.