God gave Noah the rainbow sign, no more water, the fire next time.

James Baldwin, The Fire Next Time

Remember the stagflation three point play? Supply contracts, prices go up due to those supply side shocks and real gross domestic product contracts. Stagflation also results in higher unemployment. Stagflation can take a long time to shake out of an economy once it sets in.

We can learn from the economic history of stagflation, particularly in Japan and the U.S. Japan had a stagflationary period started by the economic shock of the collapse of Japan’s real estate market (not unlike what is happening in China with Evergrand and Sinic) and the follow on effect of a 60% decline in Japan’s stock market. The U.S. had a stagflationary period in the 1970s brought on by a dependence on foreign oil and predatory pricing largely by OPEC. That led to skyrocketing oil prices and gas lines. Both countries experienced a “Lost Decade” due to stagflation.

The Federal Reserve Bank of Atlanta announced this week that it projects real GDP grown in the third quarter of 2021 to fall to 0.5% with some caveats:

The Federal Reserve Bank of St. Louis gives a longer term chart of GDPNow:

The point of these graphs is to emphasize that the US economy appears to be heading to a contraction and inflation brought on by a combination of supply side shocks (cost-push inflation) and demand caused in part by government actions (demand-pull inflation) combined with sharp increases in gasoline prices among other commodities. Gasoline prices ratchet through many products in the economy and have been sharply higher over the last 12 months as the U.S. became more dependent on OPEC production.

All the indications are that the U.S. may be headed into a prolonged period of stagflation which is inflation combined with a stagnating economy. It seems less and less likely that inflation is “transitory” and more likely that it will last well into 2023 and possibly 2024.

How does this affect songwriters? Remember that the mechanical rates set in the current Copyright Royalty Board rate proceeding will fix prices until 2027, so it appears that there will be considerable overlap between the inflation cycle and the royalty rates–all the more reason to seek the same inflation indexing for songs as the CRB recently granted for sound recordings.