Recession is coming in Q1 07. Inflation is here, too. High oil prices are here to stay. Oil started rising 2 years ago; it has NOTHING to do with Israel. So yes, we have a sustained increase in prices, namely oil (and copper and other building supplies). Inflation is at 2.9% annual rate, yet the Fed paused. They are afraid of the recession, why else would they pause in the face of ever-rising oil prices and ever rising consumer spending? Consumer credit rose in June/July ? to the highest level. I don’t know if the Fed is light years ahead; they are better at fooling us, that’s for sure. They stopped publishing M3, so now we don’t know how much money they are printing.
The dollar keeps losing its value against other currencies. When we went to Germany in July 2001, 1 dollar was 1 euro. Today, you need $1.27 to buy one euro. That’s a loss of almost 30% in the value of the dollar against the euro. More losses are coming, if the hints by foreign central banks to diversify (and today’s disappointing Treasury auction) are any indication.
I think if we didn’t have China competing for all these resources, the prices of oil, copper, steel, concrete, lumber would be lower.
As long as inflation is above 2% while the economy is slowing, that is stagflation in my book.