Oil prices remain high, and CPI is about to be released—could stagflation really happen?

Recent U.S. personal consumption expenditures price index (PCE) data shows that price pressure still persists, and the market is closely watching the March consumer price index (CPI) data that will be released tonight. Due to an energy price increase driven by geopolitical conflicts, concerns about a rebound in inflation are gradually growing. Against a backdrop of shifting economic growth expectations, the term “stagflation” has once again become a focal point of discussion in the financial world.

PCE data shows inflation pressure remains high

The report released yesterday by the U.S. Department of Commerce (4/9) indicates that before the recent surge in energy prices, core inflation had been consistently above the Federal Reserve’s target level.

After seasonal adjustment, the core personal consumption expenditures price index excluding food and energy rose 3% in February. The inflation rate across all items increased 2.8%. The Federal Reserve targets 2% inflation and believes that core PCE more accurately reflects long-term trends.

Recent PCE data shows inflation staying at a relatively high level, reflecting the stickiness of prices. More importantly, this data reflects figures from before the war began. Influenced by geopolitics, rising crude oil prices have lifted transportation costs, which also makes tonight’s upcoming March CPI data even more noteworthy.

In addition, the seasonally adjusted annualized growth rate of gross domestic product (a measure of the production of all goods and services) released by the U.S. Department of Commerce was only 0.5%, lower than the prior value of 0.7% and the initial estimate of 1.4%. The full-year growth rate remains at 2.1%.

The definition and time-space context of stagflation (Stagflation)

Because energy prices are rising due to geopolitical conflicts, the market’s concerns about an inflation rebound are gradually increasing. Against a backdrop of shifting economic growth expectations, the term “stagflation” has once again become a focal point of discussion in the financial world.

“Stagflation” refers to a triple bind in which an economy faces high inflation, high unemployment, and economic growth stagnation at the same time. The most famous historical case occurred in the oil crisis of the 1970s, when energy prices surged sharply, triggering severe supply-side shocks, resulting in both rising prices and corporate layoffs. This phenomenon puts central banks in a dilemma: cutting interest rates to stimulate the economy would worsen inflation, while raising interest rates to curb inflation would deepen an economic recession.

Chairman Powell and officials’ views

In response to market concerns, Federal Reserve Chair Jerome Powell stated clearly at a recent FOMC press conference that he does not agree with describing the current economy using “stagflation.” He noted that in the 1970s, there were double-digit unemployment rates alongside extremely high inflation; by contrast, today the U.S. unemployment rate is still within a normal range, and inflation is far below historical highs. Powell emphasized that the Federal Reserve will continue to monitor price pressures brought by geopolitics and adjust its policy steps based on actual data.

But others hold different views. Chicago Fed President Austan Goolsbee (Austan Goolsbee) recently expressed concern about the current situation at the (Detroit Economic Club) in Detroit, saying:

“If before the inflation caused by tariffs has faded, high oil prices trigger stagflation—leading the main engine of economic growth, U.S. consumers, to lose confidence—start cutting spending and shift to saving, and ultimately push the economy into a stagflationary recession, that would be the worst outcome.”

Macroeconomic analysis: the likelihood of extreme risks occurring

By standards from the 1970s, the probability that the U.S. economy falls into a typical stagflation scenario is relatively limited. Although the current rise in energy prices is bringing price pressure, U.S. GDP is still growing positively, and the labor market has not shown a broad-based downturn. However, if international oil prices remain high for the long term, it will indeed increase supply-chain costs. Overall, the current environment is more of a transition period characterized by both slowing economic growth and sticky inflation; the market should view it rationally and avoid overinterpreting extreme risks.

This article, Oil prices stay high, CPI release is imminent—will stagflation really happen? First appeared on Lian News ABMedia.