Is the world facing stagflation?

US inflation is above the Federal Reserve's comfort zone. But at the same time, America's economy looks like it's slowing down. More and more analysts are whispering the S-word - 'stagflation'. A severe slowdown in the US is certainly a possibility, says Stephen Roach of Morgan Stanley - but is inflation really set to take off?

World financial markets continue to feel as if they are balanced on the head of a pin. What's particularly interesting are increasingly frequent swings from one scare to another.

Just a few weeks ago, it was the inflation scare - triggered by a fractional overshoot in America's core CPI in April. Now it's the growth scare - brought on by a weaker-than-expected increase in US nonfarm payrolls in May. The combination of these shifts points to one of the most worrisome scenarios of all - the dreaded stagflation scare. How likely is such a possibility?

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Contributor

Stephen Samuel Roach is an American economist. He serves as a senior fellow at Yale University’s Jackson Institute for Global Affairs and a senior lecturer at the Yale School of Management. He was formerly chairman of Morgan Stanley Asia, and chief economist at Morgan Stanley, the New York City-based investment bank. He is the author of several books including Accidental Conflict: America, China, and the Clash of False Narratives and Unbalanced: The Codependency of America and China.