Economic Growth Down, Inflation Up: Stagflation Ahead?

Economic growth may soon turn negative and price increases continue to escalate.

The Bureau of Economic Analysis just announced that real gross domestic product growth for the first quarter of this year slowed to 1.6%. That’s down from the 3.4% GDP growth in the fourth quarter of last year and down further from the 5% growth recorded in the third quarter of last year. At the same time, consumer inflation is rising, which means the country could be heading toward stagflation, which I discussed in a February column.

At that time, contrary to the consensus view, I forecasted that inflation would increase, not decrease this year. I also noted that economic activity would slow this year and may even turn negative by summer. It looks like that may be happening.

Economic growth has been boosted for the last two years mainly from the federal government’s huge deficit spending. Large wage increases also helped fuel the increase in economic growth. This year wage inflation is contributing to the increase in consumer prices.

Congress must address the deficit spending problem. The public debt, which is the sum of all deficit spending, is now more than $34.5 trillion. There is no mechanism in place to ever pay down that debt. Rather when a ten or twenty year bond matures and must be…