Lessons from Inflation Past

Flashback to the '70s

October 2018: Market Perspective

Introduction

Beyond bell-bottoms and leisure suits, the 1970s was a decade of historic political and social change in the U.S. It also was a decade of momentous economic events. Growth stalled, energy prices soared, employment slumped, and inflation and interest rates skyrocketed. Economists coined the phrase “stagflation” to describe the stalled-growth, soaring-inflation backdrop, while grassroots activists launched a “Whip Inflation Now” crusade in response to escalating consumer prices (complete with “WIN” buttons for those leisure suit lapels).

U.S. inflation (realized and expected) declined after peaking in the late 1970s and early 1980s, when sharp hikes in short-term interest rates eventually helped “WIN.” Now, however, this decades-long trend may be ending because the free-trade regime that helped suppress inflation is under threat from politicians around the globe.

Indeed, the Producer Price Index showed year-over-year price increases in nine of 10 categories as of August 2018. High diffusion of producer price inflation is unusual for this stage of the economic cycle and hasn’t been seen since the late 1970s. In this Market Perspective, we’ll time travel to address why the 1970s are relevant to today’s inflation environment and explain the implications for growth investing.

Flashback to the '70s: Lessons from Inflation Past

October 2018: Market Perspective

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