But does growing inflation and sagging economic growth set up the potential for stagflation?

$5. That’s the price I paid for a black coffee yesterday. Last week, I paid $4. What's $1, you ask? That may not seem like much, but this 25% price increase far eclipses the last time my salary went up. I heard multiple variegated iterations of the “Insane price of coffee” conversation throughout Sydney’s CBD this week as I waded to the office a bit of outrage over the price of a simple cup of joe mixed with tips about where to source the best quality-for-dollar ratio. The exchange is in the open between friends and colleagues because it’s something we bond over a daily habit. We will rarely grumble when the cost of tomatoes rises, but inflation is rolling out there, tinned, fresh and saucy. Fuel is another major one, as prices per litre are breaking well above $2 across the state this week, hitting families and businesses in the pocket.

The huge worry now is that the rising price tag of essentials, the fear of the war that is raging in Ukraine, flooding on the east coast and the prospect of higher rates will damp confidence and cause households to pull back on spending. That might slow growth, while prices remained stubbornly high a combination that economists call “stagflation” (a portmanteau of “stagnation” and “inflation”).

This very strange occurrence was first identified in the 1970s when an oil supply shock produced a long, sustained period of higher prices but stagnant economic growth and growing unemployment. In the US inflation was 12.4% by 1980, GDP was -0.2% and unemployment was 7.1%. Australia had its moments too, of analysts being confounded by how unemployment and rising inflation could occur at the same time (the assumption was, after all, that the two could be traded off against each other). It’s safe to say that this isn’t the economic time people long for, though the clothes were fabulous (and back in style).

So, could it happen today?

Analysts remain split, but people are not dismissing it the way they did two weeks ago. The first whiffs of stagflation sequel emerged in October 2021 when US GDP was growing at a meager 2% (with some sort of rebounding economy) as inflation was in the 6% region. Now, Russia’s invasion of Ukraine is squeezing supply and raising prices of commodities worldwide just as economies were already enduring the highest inflation in decades (soaring to a 40-year high of 7.9 percent in the US this week). Economists are on edge again as forecasters lower their growth estimates.

Amundi, Europe’s biggest asset manager, said last week that Russia’s invasion of Ukraine “represents another step on the way back towards the 70s”. GSFM investment specialist Stephen Miller is also thinking about stagflation, telling my colleague Lewis Jackson: “At the moment things look ok but there are reasons to be concerned. I’m not saying that this is necessarily a rerun, but there are a few eerie parallels.” Stock markets in Europe are already feeling the knock-on effects of a ‘stagflationary stock’ as the long-awaited growth to value rotation loses steam and concerns grow that the fighting will apply the brakes to the region’s economy.

But not everyone is so sure. David Sekera, chief US markets strategist called Jackson as the most sanguine person he has ever met, citing robust growth in the US and reiterating his view that inflation will decelerate this year due to “supply chain bottlenecks easing and consumers shifting their spending from goods to services”. For what it’s worth, inflation is high, relative to normal, but far below the highs we saw running through the 1970s. And unemployment is also low by historical standards. Australian households are hoarding historically high levels of cash too, but, again, are they brave enough to spend it.

Australia's economic picture is murky, and this was reflected in the comments from many ASX-listed companies during February reporting season. But, while not too many are crying stagflation at the moment, it is something to watch because it will be a real pain in the backside for investors if it comes to pass. We all knew there would be bumps in the road as economies emerged from the pandemic. But investors are wondering whether the bumps are transient or persistent. Australia only releases CPI data quarterly and won’t do it again until the end of April, but you can feel it!  The price changes all around you, catching up with your own emotional experience of price movements. Let’s root for coffee prices staying put.