by: Barry Ritholtz

Over the years, we've looked at -- and coined one or two -- terms for the current inflationary environment. We have reviewed such phrases as:

Stagflation: The classic 1970s term for high inflation (+6%), very anemic growth (0-2%)

Blahflation: Street Insight's Doug Kass term circa 2006 (video)

Stagflation Lite: was what NYU's Nouriel Roubini called it in June 2006;

Demi-Stagflation: My own term for elevated inflation and soft growth (May 2005)

Inflastagdeflation: Minyan Keven Depew's term for understated Inflation, stagnant wages and incomes, and price cuts in markets that are either highly competitive or experiencing weak demand.

To this list of clever wordsmithing, we add one more phrase, courtesy of Raymond James Chief Strategist, Jeff Saut.

That word is Agflation:

"These inflationary leanings were reflected in last week’s headline CPI figures (+0.7% in May), which were the second highest in 16 years, that is still not being reflected in the laughable “core figures” (+0.1%), begging the question, “Can this particular ‘conundrum’ continue?!” 

Again, commonsense says NO, since the 25% increase in the Goldman Sachs Commodity Index over the past five months suggests that eventually commodity prices will bleed into the core readings.

This “agflation” has left grain prices at 10-year highs, stoking inflation fears in Europe and putting central bankers there on alert. Also adding to the agflation-agitations has been worldwide drought conditions, a fact that has not been lost on China, where foodstuff consumption accounts for a large portion of disposable income. Consequently, China has raised interest rates substantially over the last 12 months. Even Japan may have to join the international rate-rape since Japan’s 1Q07 GDP was revised recently to +3.3%, from 2.6%, implying that growth there is stronger than both here and Europe. If Japan raises rates, it would have wide ranging implications for the ubiquitous “carry trade” that drove usage of currency and stock derivatives up 24% in the first quarter of this year to an astounding $533 trillion, but that is a discussion for another time." (emphasis added)

As we noted this past weekend, the prices for commodities in general, and agricultural commodities in particular, had reached all sorts of highs: Wheat prices hit 11-year high; Oil Rises to Nine-Month High; Copper Gained; Gold, Silver Rise; Corn, Soybeans Rise; Cotton Extends Rally to Three-Year High; Cost of Gas and Food Rose Sharply Last Month;   

The absurd list of what doesn't go into "core" inflation is long, and ever more ridiculously, getting longer: Wheat, Oil, Copper, Gasoline, Gold, Silver, Corn, Soybeans, and Cotton. 

Oh, and education and medical care never seems to have much impact, regardless of the extraordinary price gains they have seen over the previous decade -- the past 5 years in particular.

Then there is the actual cost of Housing, not properly reflected in the BLS Consumer Price Index [CPI].

But other than all these items going up in price, there is no inflation.


Jeffrey Saut
Investment Strategy
Raymond James, June 18, 2007