Irwin Kellner of says stagflation is coming back:

HEMPSTEAD, N.Y. (CBS.MW) — Don’t look now, but just as inflation is speeding up, the economy is slowing down. Can you say stagflation?

…One way to measure inflation psychology is to compare the yield on the regular 10-year Treasury note with the yield on the inflation-indexed note, known as TIPS, for Treasury Inflation Protected Security. The greater the spread, the more worried investors are about inflation. Currently the spread is almost 2.8 percentage points – the most since 1997. Since this is greater than the current rate of inflation, it shows that investors expect price rises to speed up.

…But how can the Fed ignore not only the widespread signs of slowing – but the fact that the economy is once again running into rather fierce headwinds?

As I pointed out two weeks ago, last year’s stimulants have been replaced by this year’s drags. There’s no tax cut this year, rising long-term rates have all but choked off the re-fi boom, housing is slowing, the dollar is up while the stock market is down, and higher energy costs are sapping buying power.

His concerns about a slowing economy, like mine, are mostly theoretical right now. Despite the occasional recent weak bit of economic data (e.g. this week’s sharp falls in new home sales and durable orders), I think it’s too early to say that we have widespread evidence of a slowdown in the economy. However, I do think that we’ll have more convincing confirmation of a slowing economy by the end of the summer. Put that together with the very real phenomenon of rising inflation and inflation expectations, and those who worry about (slightly) higher inflation and lower growth may not be far off. While I think that “staflation” is an overly dramatic term for what we’ll probably experience, it captures the right idea.