Economist: Energy and logistics crisis may put the United States back into a stagflation trap

The former chairman of Morgan Stanley Asia and the well-known economist Stephen Roach recently issued a warning that the current global energy crisis and the continued fermentation of international logistics bottlenecks may cause the United States to encounter "stagflation" in the 1970s. "The dilemma is reappearing, that is, the coexistence of high inflation rate, high unemployment rate and low economic growth rate, and the complete failure of monetary policy control may strike again.

Since September, the global "energy shortage" has been concentrated in many places. At the beginning of this week, international crude oil prices once again hit a new high since 2018. The price of NYMEX natural gas in the United States rose more than 4 times year-on-year to above US$6. To make matters worse, due to the continued existence of logistics bottlenecks, the CIF price of energy in the European and Asia-Pacific end consumer markets has risen faster, which in turn has caused many countries and regions to face difficulties in power supply that have been rare for many years. It further impacted the global industrial chain and caused the prices of industrial products to rise further.

In fact, the “one box is hard to find” in the container shipping industry and the “chip shortage” in the electronics industry chain have already troubled the global economy in the first half of the year. However, the pressure on energy supply has clearly worsened the situation. On the one hand, the world economy has not fully recovered from the impact of the epidemic. On the other hand, the continuous rise in social prices from raw materials and manufactured products is still inevitable. This means that as long as there is another supply chain accident similar to the blockage of Suez in the first half of the year, then the global advanced economies falling into the "stagflation" trap will be an irretrievable fate.

Once "stagflation" occurs, as the name implies, prices continue to rise while the actual economic growth rate almost stagnates. This is obviously a severe situation for the overall economy, and therefore it extremely tests the policy wisdom of central banks, especially the Federal Reserve. Roach pointed out that the ultra-loose monetary policy that the Fed has maintained for many years, especially the additional liquidity measures, is precisely the culprit that has pushed the economy into a long-term high inflation environment. As a result, the high inflation and low growth dilemma that the United States faced in the 1970s due to the "Middle East Oil Crisis" may recur. High inflation is by no means "temporary" as Fed officials expected, but may last longer than anyone's. It takes a long time to imagine!

The economic expert pointed out that due to the lack of electricity and shipping bottlenecks squeezed by overseas industrial chain activities, the United States is likely to usher in a general inflationary explosion during the Christmas and New Year peak consumption season at the end of the year. In the process, the cold weather, concerns about the global trade environment, and the troubles of the international geopolitical situation may make the situation worse.