Is stagflation taking hold? In our dreams, maybe, since its impact would be relatively benign in comparison to the economically lethal debt deflation now spreading from financial assets and real estate into the consumer economy. The Wall Street Journal, among others, seems to think that a combination of recession and persistent inflation is about to bring back the stagflation dirge of the 1970s. And while the following headline on yesterday's lead story in the Journal may have gotten the facts right, it entirely missed the implication of those facts for the not-so-distant future: 'Fears of Stagflation Return/As Price Increases Gain Pace.' That's true enough, at least for now. But our own theory, first broached here more than two years ago, is that the price increases we normally associate with inflation would eventually become deflationary. After all, how can the price of goods and services continue to soar if incomes are not rising commensurately? For tens of millions of Americans whose wages have barely budged in real terms, a rise in the price of gasoline means that they will have to consume less of somethng else. Nor is real estate inflation compensating any longer for the shortfall. In fact, property values are falling, and this can only further constrain consumer prices from rising in the future. Big-Ticket Items That doesn't mean that grocery store items that we cannot do without will necessarily fall in price, at least not right away. But the big-ticket items such as loaded SUVs, vacations and kitchen remodels certainly will, since demand for all of them, and for many other luxury items, is about to dry up as the country slips into deep recession or worse. We should also point out that in the 1970s, even with the oil embargo, gas rationing and high inflation taking their
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