Stagflation in the 1970's were characterized when inflation rates traded above GDP and in 6 years of the 1970's decade, inflation traded above Fed Funds. Fed Funds began 1970 at 5.0 and ended in 1979 at 13.00 while inflation hit 1970 and 1971 lows at 3.3 and 3.4 then 13.3 in 1979.
Inflation traded above Fed Funds in 1970, 1974 to 1977 and 1979. GDP began Q4 1973 at + 3.8 then contracted to minus 4.7 by Q1 1975. From 1973 to 1975, 5 quarters were negative. Central banks raised and lowered interest rates to contain inflation and failed as inflation tracked above and below Fed Funds.
From 2008 to current day, inflation traded above Fed Funds and GDP for the vast majority traded below Inflation. inflation since 2014 trades higher than GDP and Fed Funds.
Stagflation is defined as inflation rates above GDP or prices trade higher than output. Wages Vs Productivity is a good measure however more detailed is divide total Labor Income by GDP to derive a Unit Labor Cost figure. The operable word is Cost as the measure to produce GDP output answers are Wages to high, low or just right. From 2007 to 2011, Unit Labor Costs were negative 0.7, dipped to minus 9.1 in 2009 and 2010 then positive 0.6 in 2010 to 2011.
In Q 1 1974, Unit Labor Costs hit 70 year highs at 12.7, Fed Funds was 9.75, GDP went severely negative at minus 0.5 yearly growth rate and inflation was 12.00 %.
Canada's example is perfect to highlight the United States as Unit Labor Costs in the US and Canada are both hovering at 1.1% lows.
Canada's Full time Hourly Wage is CAD 27.56, inflation at 1.6 for April and 1.3 on its newly revised CPI Trimmed Mean basis. The interest rate is 0.5 and GDP reported June 30 was 0.2 and Minus 0.9 in Manufacturing.
March and February reported GDP at 0.5 and 0.1 followed by January, December 2016 and November 2016 at 0.6, 0.3 and 0.5. Subtract the percentages from GDP and actual from January went from 1,709, 965 to current 1,723, 201. Essentially no change in 6 months in GDP and the US example is the replication of Canada.
The volatile release historically is Unit Labor Costs and GDP while the drivers are inflation and Fed Funds. Higher inflation and interest rates historically fails in the normalization question and leads to low GDP and asks, are we heading to 1970's Stagflation.