Rebel Capitalist: Is Stagflation Back?

Investors have seen the market take a hit in the past few weeks. Headline fears about tariffs have sparked concerns about rising inflation and the potential to slow the economy. That’s because tariffs increase the price of imported goods and reduces demand.

Those two factors could create stagflation, the condition of a slowing economy with high inflation. Last week’s PCE inflation, looking at core inflation data, looks sticky. It ticked up in March, with a 2.75% implied inflation rate.

That level may rise further depending on the impact of tariffs. The 25% proposed tariff on automobiles could raise car prices by an average of $6,000. That would make the average car price close to $50,000, a big chunk of change for the average American worker.

With new car prices jumping higher overnight on tariffs, used car prices will also soar. That will make transportation costs far higher, more than offsetting events like a decline in oil prices.

With rising prices and a slowing economy, the recent market selloff over tariff uncertainty looks reasonable. It’s a sign that the stock market may not be ready to break meaningfully higher anytime soon.

In a scenario of extreme stagflation like the 1970s, investors could have the double-whammy of high inflation and poor stock returns. That scenario led to a 70% real loss for stocks the last time it occurred. However, commodity prices boomed, offering investors some safety.

To see the full impact of stagflation and other economic dangers now, click here.