Supply chain chaos may spark 1970s-type inflation: Stephen Roach

Supply chain chaos may spark 1970s-type inflation: Stephen Roach

Economist Stephen Roach is warning that the U.S. may be on a collision course with 1970s-type inflation.

The previous Morgan Stanley Asia chairman is nervous that the impression of power value spikes on China’s struggling provide chain would be the tipping level.

Crude oil topped $80 a barrel this week for the primary time since 2018 earlier than settling to the mid-$70s.

“We’ve had supply chain issues really now for the past year and a half. They’ve afflicted many commodities, inputs like semiconductors and now there’s energy and power related shortages in China,” Roach informed CNBC’s “Trading Nation” on Wednesday.

He began sounding the alarm about China’s provide chain issues final yr because the nation was attempting to deal with Covid-19 shutdowns.

‘One provide chain glitch away from stagflation’

“We were sort of one supply chain glitch away from stagflation,” mentioned Roach, a Yale senior fellow and main authority on Asia. “That seems to be playing out, unfortunately.”

Stagflation refers to pressures that push costs increased during times of slowing progress.

“It’s worrisome for the overall economic outlook and raises serious questions about the wisdom of central bank policies — especially that of the Federal Reserve,” he mentioned.

Roach is vital of the Fed’s historic simple cash insurance policies, questioning the necessity for extra stimulus amid sharp and certain long-term inflation.

“The likelihood of continued [supply chain] bottlenecks moving from one area to another, which is strikingly reminiscent of what we saw in the early 1970s, suggests that inflation will stay at these elevated levels for longer than we thought,” Roach mentioned. “The Federal Reserve is already beginning to back pedal on its recent view that these pressures will fade quickly.”

If stagflation materializes, he contends, it could coincide with the holiday spending season.

“The impact will primarily be through the price level,” said Roach. “We need to look much more carefully about the potential risks.”

His latest prediction comes two months after he warned on “Trading Nation” that the U.S. and China were in the early stages of a cold war. According to Roach, the relationship is still contentious as China’s “common prosperity” push looks to level out wealth.

“The real risk is this potential sea change in policy strategy,” Roach said.

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