Stagflation Is Coming To A Theater Near You

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by Tyler Durden
Monday, Dec 20, 2021 - 06:23 PM

By Vincent Cingarella, Bloomberg Markets Live commentator

If it looks like a duck, walks like one and quacks like a duck, it’s a duck. Inflation is rising and consumer spending power is falling. Those are clear warnings of slower growth and higher costs -- spelling out the dreaded STAGFLATION scenario that the Fed is pretty much powerless against, leaving risk assets in the cross hairs.

During the pandemic spread, many economists had pointed to the savings rate as key to maintaining consumer spending power in the face of rising prices. But as the chart above shows, that is no longer the case. Savings as a percentage of disposable income has cratered. Add to that the drop in real earnings and you have a consumer running out of gas to fuel spending and corporate earnings.

It all points to slower spending, higher prices and lower earnings, which reduces stock prices, lowering the wealth effect resulting in stagflation. Things are not looking so rosy for 2022 without a real boost to wages.