More stagflation ahead and the Biden economy.

Peter Navarro's weekly market and economy wrap for the week ending June 16th,

2023.

The small news of the week was that the Federal Reserve paused its interest rate death march in the wake of allegedly dovish news on consumer and producer prices.

The bigger news is that if one probes further, these reports tell us that America's

working in middle classes are likely looking forward to several more years of persistent inflation, relatively high interest rates and

sub-par economic growth. In other words, stag inflation. To understand why this may

be so, let's make the clear distinction, as both economists and the Federal Reserve do,

between core inflation and non-core inflation, the total of which provides the overall so-called headline rate of inflation.

This distinction is important because the Federal Reserve primarily bases its monetary policy decisions on whether to raise or lower interest rates

on trends in the core rate alone.

Core inflation is simply the overall inflation minus non-core food and energy prices.

Economists like to emit non-core inflation and monetary policy decisions because in most cases food and energy prices are driven

more by exogenous supply shocks than movements in the business cycle.

For example, both food and oil prices spiked with the Russian

invasion of Ukraine because oil supplies were disrupted. Ukraine is one of the world's

most important wheat growers and bread baskets and oil is a key

contributor to fertilizer and therefore food prices. More generally, food prices tend to rise and fall with things like weather conditions,

whereas energy prices are often knocked off course by exogenous shocks, for example an oil embargo in the 1970s.

The other fact useful to lay the predicate for the case that sagflation is likely here

to stay for a while is this.

Since the spring of 2022, the Federal Reserve has increased

...