There are signs of stagflation in the United States. What you need to know
The latest data on the US economy shows that the risk of stagflation is growing in the country. Inflation continues to rise, while the labor market slows down significantly and threatens to pull down production. The Federal Reserve is trying to revive the economy by lowering interest rates, but the White House's tariff policy still threatens to drive up prices for consumers. Is stagflation real in the United States and when it may occur — in the Izvestia article.
Signs of stagflation
• Some trends are worsening in the US economy, which can be used to judge the approach to stagflation. The latest inflation data showed that the consumer price index (CPI) rose by 0.4% month-on-month and 2.9% year-on-year in August. These are the highest figures since January of this year. At the same time, the core CPI, excluding food and energy, showed a 0.3% increase in prices over the month and 3.1% over the past year. Both indicators exceed the 2% target set by the Federal Reserve System (FRS). Economists are particularly concerned about rising prices for rental housing and gasoline — by 0.4% and 1.9%, respectively, in monthly terms.
The term "stagflation" is derived from the words "stagnation" and "inflation". This is a situation in which depressive signs such as lack of economic growth and rising unemployment are combined with inflation. In stagflation, an attempt to correct one phenomenon exacerbates another, while maintaining a crisis situation. Economists assess stagflation as a more dangerous phenomenon than recession, while there is no universal way to deal with it.
• At the same time, the labor market is weakening. The number of jobs did not increase at all in August, with the exception of agriculture, with an increase of only 22,000 vacancies. The unemployment rate rose to 4.3%, which is the highest rate for the United States in four years. Wage growth slowed to 0.3% in a month and to 3.7% in annual terms, which is not in line with the market forecast.
• The most important labor market indicator in the United States, the number of initial applications for unemployment benefits, also clearly demonstrates the problems in the economy. During the week, 263 thousand people applied for benefits, which is the highest figure since October 2021. In addition to all this, the Bureau of Labor Statistics reviewed its data and revealed that from April 2024 to March 2025, the number of new jobs in the economy was 911,000 fewer than previously estimated.
What leads to stagflation
• According to current data, it is too early to say that stagflation has set in in the United States. However, they demonstrate that the economy is smoothly moving towards a slowdown, despite the fact that another ingredient of stagflation — stable inflation — is already a given. Forecasts for economic growth are declining, while those for accelerating inflation are rising. This indicates not the most pleasant expectations from the American economy for the end of this year and the beginning of next year.
• There are several factors that cause such concerns. The main one is the tariff policy of US President Donald Trump. The introduction of duties on imported goods should lead to higher prices for consumers and accelerate inflation. So far, tariffs have had a limited effect and do not lead to an avalanche of price increases. Suppliers managed to fill warehouses with products before the introduction of duties, partly the costs fell on new participants in logistics chains, Trump himself was rather inconsistent in imposing tariffs and gave many countries a reprieve. This mitigated the impact of tariffs on inflation, but did not completely eliminate it. Sooner or later, against the background of stagnating production, price increases will occur, and given the unpredictability of the White House's actions, the risks of inflation remain high.
• In part, expectations for inflation are related to the Fed's current actions. The regulator lowered interest rates for the first time in nine months, intending to slightly stimulate the economy and give an impetus to the labor market. This can trigger inflation, especially if price increases due to tariffs do begin. At the same time, Fed Chairman Jerome Powell noted that he would not rush to further reduce the rate, as the White House wants.
• The fight against illegal migration also does not contribute to the economic recovery processes. After the deportation of cheap labor, it has not yet been replaced by more expensive ones with American citizenship. This forces businesses to close and reduce job creation. So far, this also cannot be called a factor that destroys the US economy, however, as in the case of tariffs, the market is afraid of impulsive actions on the part of Trump, who may at any moment intensify the fight against migrants.
What will stagflation lead to?
• If inflation does go up due to tariffs, and the labor market remains frozen and leads to an economic downturn, the consequences of stagflation will be quite significant. There will be a further reduction in production and an increase in unemployment, which will increase the number of poor in the country due to rising prices. This, in turn, will lead to social tension, the signs of which are already being exposed during Trump's second term.
• So far, economists are encouraged by the fact that although inflation is rising, it remains relatively low. When there was real stagflation in the United States in the 1970s, inflation was in the double digits. Now it barely exceeds the target, which may be unpleasant for the country, but on a historical scale it is not too dangerous. The opportunities for economic growth in the United States have not yet been exhausted either: if the White House's plan to shift production from other countries works, it will allow us to digest the current level of inflation by increasing the welfare of the population.
• At the same time, we must not forget that any scenario in which stagflation can be avoided assumes that the Fed retains its independence and decides on its own how to adjust the economy. However, in May, Paell's powers will run out, and Trump makes it clear that he wants to subjugate the regulator and move to radically lower interest rates to stimulate the economy. If the United States does not increase production and solve the unemployment problem by then, their economy will suffer a severe stagflationary blow.
When writing the material, Izvestia talked and took into account the opinions of:
- Vladimir Bragin, Director of Financial Markets and Macroeconomics Analysis at Alfa-Capital Management Company;
- Pavel Samiev, General Director of the Businessdrom Analytical Center, representative of the Opora Russia Committee on Financial Markets.
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