Truflation US Inflation Update February 2024

Are we seeing the start of stagflation?

Recent signs of stickier inflation in the US have increased concerns that investors are perhaps too optimistic about the odds of a soft landing. The January PCE price index reading was in line with market expectations, while the CPI inflation figure came in hotter than expected. This highlights that the path to the 2% Federal Reserve inflation target is not going to be as smooth as hoped.

The major concern is that inflation could enter into an era of stagflation, where price increases re-accelerate while economic growth slows. Given the strength of the markets and the economy in Q4, it may be that investors are underestimating this risk for 2024, especially given the similarities between the path of the CPI in the 1970’s and what we are seeing today.

Graph 1 – CPI-U Year-over-Year Percentage Change 1966 to 1982, and 2013 to present.

Source: US Bureau of Labor Statistics 

The inflation story in the 1970’s and 1980’s was driven by an oil embargo and a war in the Middle East, while the Vietnam War also contributed to the rising prices. These impacts were similar to the price trends we are seeing now, given the impact of COVID, the wars in Ukraine and Israel, and the supply-chain issues we have seen over recent years. In addition, US government spending remains a key concern.

Indeed, we are now seeing significant price increases in cocoa which will significantly impact the prices of food. On top of this, oil prices have passed $80 a barrel once again for the first time since November. Higher oil prices were one of the key contributing factors that drove a return of inflation at the end of the 1970’s.

Read the entire 16 page report, here.

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