Will Stagflation Occur for the First Time in 40 Years? "High Inflation and Low Growth Likelihood Increasing"

US Treasury Yields Fall Despite Inflation Signs
Experts Say "Investors Are Concerned About Both High Inflation and Low Growth"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] Amid the continuous decline in U.S. Treasury yields, concerns are growing about the possibility of 'stagflation'?a combination of high inflation and low growth?arising as prices keep rising.

On the 21st (local time), CNBC reported that "investors are simultaneously worried about inflation and recession."

Stagflation, a phenomenon where recession and inflation occur simultaneously, previously happened in the United States during the 1970s.

Now, more than 40 years later, CNBC reports signs that stagflation may be occurring again.

Aneta Makowska, Chief Economist at Jefferies, said, "As inflation continues, the possibility of suppressing demand and inducing policy errors has increased, which could ultimately hinder economic growth."

Experts cite the recent decline in the U.S. 10-year Treasury yield as the basis for this analysis.

Typically, the 10-year Treasury yield is directly influenced by market investors' perceptions and serves as a barometer indicating future economic outlooks.

In situations where inflation is expected due to signs of an overheating economy, central banks are more likely to raise benchmark interest rates, which naturally leads to an increase in Treasury yields.

Earlier, the 10-year Treasury yield reached this year's high of 1.75% in March but fell to 1.29% as of this date.

Despite the U.S. Consumer Price Index (CPI) rising 5.4% year-over-year last month?the highest since 2008?the decline in Treasury yields is interpreted as reflecting investors' concerns that the possibility of recession outweighs that of overheating.

Michael Collins, an asset management manager, said in an interview with CNBC, "Looking at the 10-year yield alone, a future economic downturn is expected," adding, "The U.S. economic growth rate is unlikely to exceed the range of 1.5% to 2%."

Experts also analyzed that concerns about stagflation are growing especially as the recent spread of the Delta variant virus threatens the U.S. economic outlook.

Nancy Davis, an asset management manager, emphasized, "If the virus spreads rapidly again, economic recovery will be delayed, and supply chain damage causing inflation is likely to persist," adding, "Stagflation poses a greater risk than inflation."