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An Official Denial Suggests Stagflation is Now the Base Case for Europe

May 7, 2022

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6:19 pm

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38 comments

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Economics

The Base Case

Be afraid, then…

From the creators of “there is no inflation” and its sequel “it’s only transitory” comes…

“ECB’s Lagarde Says Stagflation Isn’t the Base Case”
https://t.co/rgwG1Z59S0

— Daniel Lacalle (@dlacalle_IA) May 7, 2022

From the creators of “there is no inflation” and its sequel “it’s only transitory” comes the base case.

Via Bloomberg

“Stagflation isn’t our baseline scenario presently,” Lagarde told the Slovenian newspaper Delo in an interview published Saturday. “While extraordinarily large uncertainty could cause a slowdown in economic growth accompanied by high inflation, the current situation can’t be compared to that of the 1970s.”

Lagarde reiterated that based on the data at hand, net asset purchases are expected to end “at the beginning of the third quarter.” Asked about interest rates, the ECB president said officials will keep “all options open” and progress gradually.

Eurozone Inflation

Euro area inflation rate courtesy of Trading Economics, annotations by Mish

Imagine Stagflation With Negative Rates

Stagflation is recession and inflation at the same time. Negative rates with stagflation will be a world first.

You will not have to imagine too much longer because the Eurozone is on the verge of recession if not in one right now.

Meanwhile despite a record high eurozone inflation rate of 7.5% in April, the ECB is sitting on -0.50% funds rates with a pledge from Christine Lagarde to move slowly.

What About the US?

Stagflation is the base case for the US too.

For discussion, Check Out Delusional Fed President Neel Kashkari, Even Worse Than Powell

Despite reckless QE, massive inflation, and enormous stock market bubbles, Kashkari is in denial.

Hoots of the Day

Congratulations Christine, you win my “Hoot of the Day” award.

Central bank presidents are on a roll.

In case you missed it, please see Stocks, Gold, Oil, Rip Higher as Dovish Powell Wins Hoot of the Day Award

Just one day later, I commented Bond Massacre Continues and the Fed Dove Rally Fails Already

Visual Synopsis

The Fed and ECB are swinging from the vines like George of the Jungle, with no idea where the trees are and certainly no idea what inflation is.

This post originated at MishTalk.Com.

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38 Comments

Newest

Oldest Most Voted

PreCambrian

4 years ago

Watch out for that tree.

Christoball

4 years ago

Stagflation is the most embarrassing outcome that a central bank can allow. Inflation will not be allowed to persist.

Bronco

4 years ago

Reply to Christoball

It won’t.

This post (and all the comments) revealing for what not mentioned. By anyone.

The debt. The massive global debt overhang. As financial conditions tighten debt will start to sour. Vicious cycle leading to further tightening. “Money” will go to money heaven. In droves. Disinflation / deflation will be worry for Federal Reserve soon enough. Emerging markets will depreciate their currency (and take inflation from developed countries … especially US) to protect mercantilism. The strengthening of $US portends outcome.

Christoball

4 years ago

Reply to Bronco

Well said. You remind me that deflation is baked into the cake by the awful fundamentals that they have already created. If they allow stagflation it would have to be on purpose by extreme effort on their part and it would have a short half life. Every debt discharged either through payment in full, bankruptcy and even perhaps taxation goes bye bye to money heaven. One radio financial planner preaches pay off all debt, which for many people is a very good good idea; but if everyone payed off all debts there would be no money left. It would all go to money heaven. Awe the mystery slight of hand that fiat money is.

Bam_Man

4 years ago

No, hyperinflation is.

Jackula

4 years ago

Reply to Bam_Man

Hyperstagflation for the win!

Jackula

4 years ago

Right there with you, its gonna be the stagflation boogie for quite a while

FromBrussels

4 years ago

Stagflation, insane policyation or whatever ation , NO problem for madame Lagarde whatsoever, with 550k euro/year, she can cope with any financial setback……Making fortunes just being utterly useless…..Great cushy job !

Maximus_Minimus

4 years ago

Reply to FromBrussels

If she didn’t make 550k, she would be compeled to commit a financial crime out of destitute. Yet another one.

Zardoz

4 years ago

Reply to FromBrussels

Don’t envy her decadent western potatoes comrade! One Russia potato with twenty western potato!

Jack

4 years ago

Reply to FromBrussels

She only makes 550/yr?

FromBrussels

4 years ago

Reply to Jack

that’s the official part…. but 550 for messing up things looks like a generous salary….to me anyway,…. to Elon Musk and to you it may look like peanuts…..

MPO45

4 years ago

It should be a foregone conclusion at this point that in the very near future, governments around the world will begin to implement price controls, export/import controls, etc to try to control inflation. I suspect it will start with energy then food or vice versa. India has already hinted at wheat controls.

No, the controls won’t help and likely make things worse but somebody has to “do something” to fix the problem because no one can have it any other way. A prudent investor would be doing their due diligence to profit from this situation when it comes to bear.

Lisa_Hooker

4 years ago

Reply to MPO45

Do not forget capital controls. It will become even more difficult to move money, if not impossible. Bullish cryptos? (Which I do not endorse.)

ohno

4 years ago

Heh I remember that cashncarry guy:

” The US economy could benefit if the the nation were to lock down really hard for 4 to 6 weeks” Kashkari.

Remember that? So not only is he an economic illiterate he’s also a medical expert. I have zero confidence any of that had anything to do with covid. The latest increase in covid rhetoric really has my mind thinking about what kind of crap is going to come out of their mouth next and what they try to do to us.

thimk

4 years ago

Reply to ohno

China must have picked up on his rhetoric – ( shanghai shutdown) which I still believe is not covid related .

ohno

4 years ago

Reply to thimk

I was flipping thru the radio stations on the road a couple days ago and there’s one channel I occasional listen to, dont recall the name, but its mostly a religious channel but I listen to it recently because it talks some about Ukraine. At any rate the host started talking about how there were massive covid deaths going on in China right now. Exactly where did he get this information? Im thinking he’s just assuming because they are lockdowned that people must be dropping like flies? It’s getting hard to trust anyone about anything.

SAKMAN1

4 years ago

Reply to ohno

Well. . . a zero Covid policy + bad vaccines + time for the virus to go Omicron = a naive population not prepared for such a thing.

Jack

4 years ago

Reply to thimk

Interesting. Pick your brain.

If not COVID related, cannot think why Chinese would do the lockdown.

RonJ

4 years ago

“Stagflation isn’t our baseline scenario presently,”

Presently, an interesting qualifier, subject to change at an inconvenient future present time.

whirlaway

4 years ago

Reply to RonJ

And that could be as early as after she takes a dump tomorrow morning!

PapaDave

4 years ago

Stagflation here we come! Now. Where to invest with 10% inflation? Certainly not cash.

MPO45

4 years ago

Reply to PapaDave

The point now for everyone is to get CASH income streams, the more income streams the better. Rental properties, dividend stocks, high yield bonds, or even high yielding chickens. The name of the game right now is “more, more more…CASH!”

Get cash or get whiplash…

PapaDave

4 years ago

Reply to MPO45

Supply problems everywhere. Oil, gas, diesel, coal, fertilizer, wheat, rice, palm oil. And now chickens! Millions being culled due to bird flu in North America. Every day new problems. And of course, in the US southwest; water. Lake Mead and Lake Powell both in dire straits.

I agree with your strategy.

Jackula

4 years ago

Reply to MPO45

Right there with you, I’m knocking out old guy handyman jobs for the time being until I find something better

caradoc-again

4 years ago

So what is likely to happen next if there is a recession with negative rates?

Bam_Man

4 years ago

Reply to caradoc-again

Hyperinflation.

RonJ

4 years ago

“Negative rates with stagflation will be a world first.”

Just like the worldwide fertilizer shortage discussed in a very recent post. Someone call the Guiness Book of Records.

Esclaro

4 years ago

Why are the Germans tolerating this? Are their issues with Russian energy dependence and the Ukraine such a distraction they don’t care about Weimar II?

Doug78

4 years ago

Reply to Esclaro

Elaborate

Esclaro

4 years ago

Reply to Doug78

Ever since the Weimar hyperinflation the German people have always been worried about inflation. So why not now? What gives?

Doug78

4 years ago

Reply to Esclaro

Germans are much more worried now about Russia’s invasion of Ukraine and Putin’s plans for the European continent than by an inflation spike which is due to energy costs which are due to the invasion. Germany and the other nations in the EU are or course worried about inflation but with demand destruction because of the high energy costs expected to kick in the inflation rate could drop considerably. They are expecting a recession even if the ECB doesn’t say it. Unemployment is still very high in the EU compared to the US and has less wiggle room to raise rates.

Lisa_Hooker

4 years ago

Reply to Doug78

I believe that unemployment numbers are reported much more accurately and honestly in the EU.

Maximus_Minimus

4 years ago

Reply to Esclaro

The Germans have always been stingy or prudent if you will. The Weimar meme is just a convenient fallback.

The ECB president is not elected by any means: it is decided between big power brokers Germany and France, and nodded through by the rest.

The big boondogle is that the mandate goes for ten years, making it a financial dictator with no easy mechanism to remove.

Unless she commits a financial crime. Oh wait, she did before being nominated.

thimk

4 years ago

well will we still continue out protectionist policies ?. Much of what we are experiencing was put into play a while ago . Did you know our ports are the most inefficient ?

https://reason.com/2022/05/06/problems-with-the-supply-chain-began-before-the-pandemic-heres-what-biden-can-do-about-it/

heard on the radio, travel services are rebounding in spite of higher prices ; Las Vegas is back baby . I think I will stagflate the summer on my lazy boy.

killben

4 years ago

“Central bank presidents are on a roll.”

Since 2009, when the buffoon with his theories of Depression saved the world the central banks have been on a roll.

Jackula

4 years ago

Reply to killben

Greenspan wasn’t the maestro everyone gave him credit for either.

killben

4 years ago

Reply to Jackula

While Greenspan started it all with his market intervention this genius took it to another with his QE and printing press. Well tutored by Greenspan looks like.

The pity is such criminals are never brought to book for the damage they have done.

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An Official Denial Suggests Stagflation is Now the Base Case for Europe

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