‘Stagflation’:Sound of ’70s

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I’ve been rooting around in my closet lately. Somewhere way back there I must still have an old polyester leisure suit. Maybe a white belt. If I find them, I’ll wear them because suddenly it feels like we’re living in the 1970s.

If you remember the ’70s, you remember stagflation. It was nasty. It was a combination of runaway inflation like in the teens and a moribund economy, as in 10 percent unemployment. Except for the Bee Gees, stagflation was definitely the worst part of the ’70s.

Normally, inflation gets fired up by a roaring economy. But we learned in the ’70s that if the price of an important commodity rises dramatically, it can help ignite inflation, even in a poky economy.

Back then, a huge contributor to inflation was the rocketing price of the most important commodity: oil. Thanks to what were then called the Arab Oil Embargos, oil got all the way up past $30 a barrel, a price that seems quaint now but was a forehead-slapper then. Those high oil prices pushed up costs of everything, helping fuel inflation.

Today, we have a similar situation. The economy is slowing but, paradoxically, inflation appears to be firing up. Again, a big part of the reason is rising commodity prices. This time, it’s not just oil, which hit a record $110 a barrel, but we’ve seen very high prices for many commodities and materials, such as steel and corn. Natural gas hit $10 per thousand cubic feet, gold touched $1,000 an ounce and now, as Jay Leno cracked, we learn that even hookers are up to $4,000. Commodity and materials prices took a dive late last week, but they’re still too high given the weakening economy high enough to fret about stagflation.

Stagflation is particularly tough on manufacturers. That’s because they tend to be heavy users of commodities and materials, but it is harder for them to push those higher costs through to the customers in a slowing economy. And since Los Angeles County has a huge manufacturing base, it stands to reason that this area will be hurt disproportionately by stagflation.

Relief could come if the economy catches its breath and starts running again. Or it could come from a sustained drop in commodity and material prices.

Despite last week’s dip in commodity and material prices, it is not at all clear that costs will go down and stay down soon. Some believe that commodities have been abducted as part of a rolling bubble phenomenon. That is, investors who fled the tech bubble in 2000 and put their money in what turned out to be the residential real estate bubble are now putting their money in commodities, which means they are in danger of becoming the next bubble.

Others believe the rise in commodity prices is the result of something more fundamental: demand. As the economies in China, India and other countries surge, they want and need oil, steel and food, driving up the prices of all those things.

Whether commodity prices are being driven up by those trends or something else, the point is it looks like high commodity prices will be with us for a time.

You know what that means: We need to find an old disco ball. And maybe L.A.’s manufacturers could play “Stayin’ Alive” for moral support.

Charles Crumpley is editor of the Business Journal. He can be reached at

[email protected]

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