The growing odds of a US stagflation trap

IN RECENT weeks, a growing number of expert observers have been raising the possibility that due to high oil prices caused by the Iran war, the US economy could find itself mired in stagflation – stagnant growth amid rising inflation.

In a series of posts on X two weeks ago, chief economist at Moody’s Analytics Mark Zandi said that the company’s machine learning-based economic model had put the probability of a US recession – defined as two consecutive quarters of negative gross domestic product growth – at 49 per cent, “even before disconcerting events in the Middle East”.

“It isn’t a stretch to expect the indicator to cross the key 50 per cent threshold amid the Iranian conflict and the resulting surge in oil prices,” Zandi said, noting that every recession since World War II – except during the Covid-19 pandemic – was preceded by a jump in oil prices.