The word “stagflation” is starting to creep into more and more people's vocabulary. Stagflation happens in an environment of above-average inflation with below average economic growth. The world's economic growth over the last six months is anything but below-average unfortunately. On the flip side, inflation is certainly above-average.

In our notes from a few weeks ago, we talked about how the world is continuing to grow but not accelerating any more. The recently released third-quarter GDP data for the United States and China reflects this thesis. China was flat on a quarter-over-quarter basis as they deal with their real estate implosion, while the US has slowed from a 5.8% run rate to 2% in the most recent quarter. Global growth forecasts for 2021 have been reduced from 6.1% to 5.8% for the last few months and 2022 global growth rates are now at 4.4%, down from 4.6% reported in August.

The bottom line is that GDP growth is slowing, but it’s still strong. Corporate profits have been outstanding and the labour market is improving, which is creating gains in personal income and capital spending. It also appears that supply chain issues should be resolved sometime in 2022. This should mitigate some inflationary pressures. It should also be noted that global GDP growth in the 1990s, 2000s and 2010s have averaged 3%, 2.6% and 3% respectively. So even if the current estimates were revised lower, we are still on a very solid footing, relatively speaking.

I have also included a piece from our CIBC economics team entitled "Out of the frying “pan”, into what?".

If you have any questions feel free to contact us anytime.

Have a great weekend.

Milan