Commentary
Yes, we have some stagflation. Subsequent to the pre-COVID peak in Q4 2019, real final sales of domestic product have slowed to a crawl, rising by just0.73 percent per annum during the last 2.5 years.
We much prefer this measure over real GDP because it removes the abrupt inventory swings from quarter to quarter, which can have out-sized impacts on the headline number. Thus, during the first two quarters of 2022 the reported back-to-back real GDP contraction was owing to inventory liquidation, not an actual shrinkage of current activity.
As it happens, however, inventory swings cut both ways—so the chart below removes this statistical noise and gets to the underlying trend of production, income, and spending….