‘Stagflation' is the economy's worst nightmare. The trends in Boston should be a wake-up call.

Boston Globe

13-03-2025

But there are rumblings of a revival for the defining financial scourge of the 'Me Decade': stagflation. And we could get a sneak peek of that '70s show rerun.
Stagflation is an extended stretch of rapidly rising prices and little or no economic growth.
That's not happening now, and economists say it's a long-shot scenario. But the trend here is troubling: Consumer prices in Greater Boston and across New England are rising faster than the rest of the country even as the region's economy underperforms.
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What's happening:
Stagflation fears are on the rise because President Trump's on-again, off-again
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'We are in some pretty unique economic waters,' said Mark Melnik, director of economic and public policy research at the Donahue Institute at the University of Massachusetts Amherst. 'It is hard to point to many historic analogs to what we are seeing with the policy responses and rhetoric coming out of Washington, and the markets are starting to respond as a result.'
Catch up:
Inflation heated up in February across New England, jumping 4.5 percent from a year earlier,
It was the biggest increase in two years and underscored a troubling contrast to
The January CPI reading for the Boston metropolitan area, the latest available, showed prices up an annual 3.9 percent, nearly a full point higher than the national rate and the second highest among metros, after Honolulu.
Why it matters:
Conditions are different today. The deficit is high, but so are interest rates. Inflation has been declining and the economy is growing. We haven't had a shock to the system like the oil embargo.
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But recession worries are building again as the economy shifts into a lower gear and Trump hits the country's biggest trading partners with inflationary tariffs and threatens to widen
'If the prevailing policy uncertainty worsens and market volatility rises further, this could lead to a vicious feedback cycle onto the economy,' Gregory Daco, chief economist at professional services firm EY, said in a note.
The big picture:
Prices rose 2.8 percent, down from 3 percent in January, as declining energy costs moderated the biggest uptick in food prices since January 2024.
Consumer prices excluding food and energy — a measure known as core CPI that is considered a better indicator of underlying inflation — dipped to its lowest annual pace since April 2021.
Stock prices rose modestly after two days of losses. The S&P 500 gained 0.5 percent while the tech-heavy Nasdaq climbed 1.2 percent.
Economic fundamentals 'remain disinflationary,' Daco said, but 'tariffs, confusion around trade policy, and tighter immigration policy mean the risks to inflation are tilted to the upside.'
Zoom in:
The risks are evident locally, with inflation reheating in metro Boston and across the six-state region.
Elevated price increases are worrisome in a part of the country where the cost of living is already high.
The Donahue Institute puts Massachusetts in the top five states for child care costs, energy prices, and home values.
Moreover, growth in
In the past year, the unusual suspects have been driving inflation faster than the national rate, according to the Federal Reserve Bank of Boston's
These include housing, medical care, education (including tuition and books), and communications (including internet and cable TV).
Final thought:
While the specter of Nixon-era stagflation still haunts us, a lot would have to go wrong for it to reappear.
Inflation is projected to slowly return to the Fed's 2 percent target — by 2026 or 2027, according to the
Economic growth is seen slowing to about 2 percent this year, the Fed estimated, down from 2.8 percent in 2024.
But Trump's commitment to tariffs is a giant wildcard. His pledge to reorder the US economy and its place in the world is a risky undertaking.
There is a remote but real possibility that the chaotic rollout of import duties and deep cuts to the federal workforce and government spending just might trigger a shock that ends in financial crisis.
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Larry Edelman can be reached at