[Famous columnist]US stagflation has arrived | Stagflation | Inflation | GDP

[The Epoch Times, May 6, 2022](The Epoch Times columnist Gary Brode wrote / Qu Zhizhuo compiled) In February of this year, we wrote an article discussing stagflation. Stagflation is a rare combination of high inflation and negative economic growth. In this article we express the view that inflation is underestimated by about 100% and is actually in the teens. In addition, we note that real GDP growth is negative once adjusted for the fourth quarter gross domestic product (GDP) to account for the amount of inventory replenishment and understated inflation.

Our conclusion is that stagflation is not with the possibility of a future economic downturn, but what is actually happening in the United States. The truth is overshadowed by dishonest or misleading government statistics.

Last week, the first-quarter GDP estimate was negative 1.4%. We believe this figure is underestimated by “destocking” (fewer items on store shelves) by about 0.8%. Because the net change in private inventories over time is zero, we adjust GDP for this.

Just as we don’t think the nearly 5% increase in post-holiday restocking is a real addition to economic growth, we also don’t want to underestimate Q1 results because merchants sold more than they bought in the quarter. Adjusted for private inventories, the adjusted GDP figure was negative 0.6%. Still not great, but not a disaster.

The real problem comes when we look at the inflation adjustment in the GDP data. This category, known as “Gross Domestic Purchases,” rose 7.8 percent. We have pointed out many times in this newspaper that the official inflation figure is underestimated by at least 8% due to underestimation of the increase in the cost of food and housing.

Another take on this comes from a blockchain-based pricing tracker called Truflation. The index shows inflation is currently at 12%. From this we can conclude that the inflation adjustment of Q1 GDP is underestimated, somewhere between 4% (Truflation Index) and 8% (the Deep Knowledge Investing estimate).

Based on the above, our estimates for real GDP in the first quarter range from -4.6% to -8.6%. That would be the second straight quarter of negative economic growth, the official definition of a recession. Considering that the official consumer price index (CPI) is 8.5%, and the unofficial CPI is roughly in the double-digit range, we can say that there has been stagflation for the second consecutive quarter.

Those who were more positive about the released statistics pointed to higher consumer spending and a strong job market. While this statement is theoretically correct, we have a different interpretation. Much of the increase in consumer spending was due to higher prices. Spending more for less doesn’t indicate a strong economy, even if it means higher consumer spending.

Anyone who has been to a supermarket in the past year can understand this intuitively. We’ve advised readers to stock up on grain and warned of future grain price increases due to the war in Ukraine and U.S. sanctions on Russia.

The employment situation is also complicated. Indeed, unemployment is low right now, and many American companies are trying to hire qualified talent. Job openings are already outstripping job losses, and these additional options are giving job seekers pricing power. From an economic standpoint, lower unemployment and higher wages both sound pretty good.

Likewise, while we acknowledge that this is a good point for those who think the U.S. economy is in healthy shape right now, we would also argue that wage growth has been below inflation in general. Simply put, even as wages rise, the average American household is able to buy less. Therefore, people’s quality of life is also declining in terms of material goods.

The distribution of the above cases is not balanced. For example, for someone who has owned a home over the past few years and refinanced it at a prime rate, a big increase in home prices won’t affect their household budget. For anyone renting, or needing to buy now and facing high home prices and rising mortgage rates, they face huge cost increases in the largest category of typical household spending.

For Americans looking to buy a new or used car lately, they’ve seen a huge increase in car prices, spending a lot of money but not having a lot of options. Finally, for low-income households, food accounts for a large portion of the household budget, and we have previously cast doubt on the official statistics, which show food inflation in the high single digits. For most people, it’s much higher.

Our view is that people are spending more while losing purchasing power, which is not a sign of economic health, although it appears to increase the overall GDP figure. Finally, we have huge inflation numbers that we think are underestimated. We had a quarter of officially negative economic growth. If you consider inventory reserves and inflation, the negative growth has actually lasted for two quarters. The stagflation we talked about back in February should be obvious to everyone by now. ◇

About the Author:

Gary Brode has worked in the hedge fund industry for three decades. Most recently, he was the Managing Partner and Senior Portfolio Manager of Silver Arrow Investment Management, a firm focused on long hedge funds offering options-based hedging. In 2020, he created Deep Knowledge Investing. This is a research firm that works with portfolio managers, RIAs, family offices and individuals to help them achieve higher returns in the equity portion of their portfolios. Broad’s work has been published in the Wall Street Journal and Barron’s, as well as on CNBC, Bloomberg West and RealVision.

The original “Stagflation Is Here” was published in the English “Epoch Times“

This article represents the views of the author alone and does not necessarily reflect the position of The Epoch Times.

Responsible editor: Gao Jing#