Recent US data has shown improvement on the surface, with near-term economic growth revised upward and inflation heating up. Yet the underlying trend tells a different story: GDP growth has slipped from 3.4 per cent to around 2 per cent year-on-year over the past 18 months, while inflation has oscillated between 2.3 per cent and 3.0 per cent without reaching target — a pattern that bears the hallmarks of stagflation.
GDP figures are easily skewed by large corporations and dominant sectors such as technology, just as CPI is readily swayed by non-core components such as energy. Large companies typically raise capital through equity listings and bond issuance, so gauging the health of the small and medium-sized enterprises that constitute the vast majority requires examining bank loans. Moreover, lending and deposits control the money multiplier effect, with the amplified broad money supply driving CPI in turn — each link in the chain affecting the next.
