Few stags at the stagflation party

Hello. Today we look at the stagflation debate, how a university course teaches us about international commerce and how the U.S. could benefit by becoming less segregated.

If there is a word of the moment in the world economy and financial markets, it's stagflation.

The concept of accelerating prices and weakening economic growth was first coined by British politician Iain Macleod, and most famously became a challenge for policy makers in the 1970s.

Now it's back in conversation thanks mainly to inflation proving more stubborn than once anticipated amid supply chain squeezes, the end of lockdowns, surging commodity prices, labor shortages and ongoing stimulus.

Indeed, a search of stories on the Bloomberg Terminal suggests more mentions of stagflation lately than at any point in the last decade.

But are we really going back to the 1970s?

The International Monetary Fund doesn't sound overly worried, even as it acknowledges the risks are mounting.

For one reason, it's hinting that its 6% global growth forecast for this year will only "moderate slightly" in revisions set for release next week.

And the consensus is still for inflation to ease. The IMF predicts consumer prices in advanced economies will peak in coming months at 3.6% before slowing to 2% in the first half of 2022.

Deutsche Bank strategists are also sounding sanguine too. A review of their outlooks for growth and inflation next year show none of the major economies bearing down on the sub-1% growth and 3%-plus inflation they define as stagflationary.

"Although the bias is for inflation forecasts to be revised up and growth to be revised down at the moment, we're still a long way from something that resembles stagflation," said Deutsche's team in a report last week.

Even in the U.K., where the stagflation shouting is greatest in the industrial world and set to unnerve the Bank of England as we report today, Deutsche's team predict inflation of around 3% and growth of almost 4% next year.

Neil Shearing of Capital Economics reckons that, rather than looking at the 1970s, a better historical reference is the 1950s which also witnessed post-war frictions in labor markets and a large expansion of the state.

"Amid the growing debate about the timing of the first hike in nominal interest rates, the post-war experience suggests that real interest rates in the U.K. and other advanced economies are likely to remain negative for several years to come," Shearing wrote in a report this week.

—Simon Kennedy

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Check out the latest Stephanomics podcast which looks at why global supply chains have become so snarled.

The Beer Game in action. Courtesy: MIT Sloan School of Management

The imaginary purchase of 10,000 cases of beer explains why global supply chains may remain snarled for a while.

The order was part of a role-playing exercise called the Beer Game that's something of a rite of passage for first-year MBA students at the prestigious Sloan School of Management.

Created in the 1960s, it models the supply-and-demand dynamics among a brewery, distributor, wholesaler, and retailer. At the Sept. 24 game, Team Bemba got nervous, made the big buy, and amassed $213,000 in make-believe carrying costs.

Brendan Murray and Enda Curran explain the lessons for the real-world here.

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Greater racial integration across the U.S. would meaningfully boost long-term economic growth, according to a study by researchers at Moody's Analytics.

If communities across the country were comparable to the nation's most integrated areas, the inflation-adjusted gross domestic product growth would increase from 2.4% to 2.7% per year over the next decade, Moody's estimated.

The researchers found that Kings County (Brooklyn) and Queens County in New York City were highly segregated, as were Essex County in New Jersey and Cook County in Illinois, which includes Chicago.

By contrast, populous counties that are more racially integrated include Hidalgo and El Paso on the Texas border with Mexico and areas in the Boston and Philadelphia suburbs.