Worry about stagflation, a flashback to '70s, begins to grow

WASHINGTON (AP) — Stagflation. It was the dreaded "S word" of the 1970s.

For Americans of a certain age, it conjures memories of painfully long lines at gas stations, shuttered factories and President Gerald Ford's much-ridiculed "Whip Inflation Now" buttons.

Stagflation is the bitterest of economic pills: High inflation mixes with a weak job market to cause a toxic brew that punishes consumers and befuddles economists.

For decades, most economists didn't think such a nasty concoction was even possible. They'd long assumed that inflation would run high only when the economy was strong and unemployment low.

But an unhappy confluence of events has economists reaching back to the days of disco and the bleak high-inflation, high-unemployment economy of nearly a half century ago. Few think stagflation is in sight. But as a longer-term threat, it can no longer be dismissed.

Last week, Treasury Secretary Janet Yellen invoked the word in remarks to reporters:

"The economic outlook globally," Yellen said, "is challenging and uncertain, and higher food and energy prices are having stagflationary effects, namely depressing output and spending and raising inflation all around the world."

On Thursday, the government estimated that the economy shrank at a 1.5% annual rate from January through March. But the drop was due mostly to two factors that don't reflect the economy's underlying strength: A rising trade gap caused by Americans' appetite for foreign products and a slowdown in the restocking of businesses inventories after a big holiday season buildup.

For now, economists broadly agree that the U.S. economy has enough oomph to avoid a recession. But the problems are piling up. Supply chain bottlenecks and disruptions from Russia's war against Ukraine have sent consumer prices surging at their fastest pace in decades.

The Federal Reserve and other central banks, blindsided by raging inflation, are scrambling to catch up by aggressively raising interest rates. They hope to cool growth enough to tame inflation without causing a recession.

It's a notoriously difficult task. The widespread fear, reflected in shrunken stock prices, is that the Fed will end up botching it and will clobber the economy without delivering a knockout blow to inflation.

This month, former Fed Chair Ben Bernanke told The New York Times that "inflation's still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high."

And then Bernanke summed up his thoughts: "You could call that stagflation."