By Rick Tobin
Stagflation is the simultaneous appearance in an economy of slow growth, high unemployment, increasing rates, and rising prices.
The last major stagflation era here in the U.S. was during the years between 1973 and 1982. Back then, energy and overall inflation rates rose so quickly that the Federal Reserve kept pushing rates higher in order to cool or “quash” inflation and unemployment rates rose as well.
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For example, the Fed increased their Fed Funds Rate from 6.75% in January 1978 to 10.25% in April 1979 and later to 20% in December 1980. The U.S. Prime Rate for the most creditworthy borrowers also peaked at 21.5% starting in December 1980 and the 30-year fixed mortgage rate hit 18.6% in October 1981.
Generally, energy price swings are a root cause of overall inflation trends up or down. This is partly due to the fact that our transportation supply chain (ships, trucks, airplanes, trains, etc.) is so heavily dependent upon various types of fuel to deliver consumer goods.
The Oil Shock Crash of 1973 was a key factor or catalyst for this stagflation era:
1973 – Oil Shock Crash: This was directly related to the end of Bretton Woods when the “gold standard” was switched to the Petrodollar (“oil for dollars”) system beginning earlier in 1971. Between October 1973 and January 1974, oil prices quadrupled within just a few months due to the ongoing OPEC (Organization of Petroleum and Exporting Countries) Embargo, or the reduction in oil production, increasing U.S. demand, and skyrocketing oil prices for consumers.
Because the mortgage rates offered by banks and mortgage brokers were so high during this stagflation era, an increasing number of sellers were offering their own versions of seller-financing such as carrying brand new 1st mortgages or offering recorded or unrecorded “wraparounds” like contracts for deed (aka “land contracts”) or AITDs (All Inclusive Trust Deeds) with much lower rates and easier qualification guidelines.
At the most recent two-day Federal Open Market Committee meeting held by the Federal Reserve that ended on May 7, 2025, Fed Chairman expressed concerns about increasing stagflation risks due to rising unemployment and price trends and left rates unchanged.
Real Inflation Trends for Food, Work, and Homes
Is the purchasing power of your dollar rapidly declining and/or are your assets rapidly increasing in value on their own due to supply and demand? The answer seems to be a combination of both.
Since 2019, the true rates of inflation seem much higher than the published inflation data shared by the federal government.
Sixteen popular chain restaurants increased their prices by an average of 42% between 2020 and 2025, according to a Finance Buzz study. IHOP’s menu prices were up +82%.
Over the period of 50 years (1973 – 2023), home prices rose by nearly 1,300% as compared with a 610% gain in the CPI (Consumer Price Index).
The inflation-adjusted hourly work wage has jumped by just a measly 1% over the past 50 years (not an annual 1% increase, but a 1% total gain over and above 1973’s wages in 2023 at a 1/50th of 1% increase per year rate).
By comparison, the inflation-adjusted median home price has gained 100% over the past 50 years. As a result, real home prices have increased by more than 100 times (or 100x) the real wage gains.
Between 1950 and 2024, U.S. home prices increased, when adjusted for inflation, at more than double the rate of inflation in all 50 states, from a low of 107% above inflation in Ohio to a high in Alaska that was 675% above inflation.
Sources: CPI, Federal Reserve, ZeroHedge, & Brilliant Maps
Tariffs Raise Prices
A tariff is a euphemism for a “tax payable by you” and the American business owners who first import these foreign goods. Warren Buffett has famously said in the past that “tariffs are an act of war” because nations will keep increasing tariffs on other nations as the trade wars rapidly increase and more of us worldwide are paying higher prices.
The business owner usually has two choices when they pay more for a product or service shipped in from another nation. The first choice is for the U.S. business to “eat” the higher tariffs and absorb the losses directly if it doesn’t force them to operate at a loss and later shut down their business. The second option is to increase the prices for consumers if they can afford to purchase these products.
There’s a very fine line here between raising prices for goods high enough to cover the tariff import costs for the U.S. wholesale business and raising the prices too high where it will drastically reduce the number of buyers who can afford to pay for it.
Long Beach and San Pedro Ports
How will tariffs and subsequent trade wars directly impact ports in Long Beach and San Pedro as well as the overall economy here in California and across the nation? Upwards of 60% of all cargo containers that reach the ports in Long Beach, California originate from China.
The proposed tariffs for consumer goods and services from foreign nations may hit upwards of 180 nations across our planet, so it’s just not an issue with Chinese imports.
Specifically, California imports the most goods from the nation of China. As a result, my home state of California may get hit harder than other states if and when the tariff and trade wars are resolved sooner rather than later.
The Law of Supply and Demand simplified: When there are fewer goods available to purchase and the demand remains steady or even increases, the prices shall rise too.
Consumer spending generally represents upwards of 70% of the annual GDP (Gross Domestic Product), so keep a close eye on this ongoing situation.
Inflationary or Deflationary Economic Cycles
As I wrote almost 10 years ago in my Inflation, Money, and Real Estate article, there are a number of wide-ranging economic cycles that can help asset prices rise or fall.
Inflation has been described as an increase in the general level of prices of a certain product in a specific type of currency. Inflation can be measured by taking a “basket of goods,” and then comparing them at different periods of time while adjusting the changes on an annualized basis. There are many different types of measurements of inflation depending upon the “basket of goods” selected.
General inflation measures the value of a currency within a certain nation’s borders, and refers to the rise in the general level of prices. Currency devaluation measures the value of currency fluctuations between different nations. Some related terms associated with inflation are as follows:
* Deflation is a rise in the purchasing power of money, and a corresponding lowering of prices for goods and services. The Fed doesn’t like this economic period of time, and will probably cut short term rates to try to offset it.
* Disinflation refers to the slowing rate of inflation. The Fed may like this type of economic time period, and may stop raising rates at this point in the economic cycle.
* Reflation is the period of time when inflation begins after a long period of deflation. Depending upon the severity of inflation or deflation, the Fed may pause with the rate hikes or gradually begin rate hikes.
* Hyperinflation is rapid inflation without any tendency toward equilibrium. It is inflation which compounds and produces even more inflation. It is when inflation is much greater than consumers’ demand for goods and services. The Fed, and the rest of America, do not typically like this economic period, so they may enact a series of significant rate hikes to slow down these high inflation levels.
Measurements of Inflation
There are many ways to measure inflation. These inflationary measurement descriptions include the following:
* Consumer Price Index (CPI): The Consumer Price Index is the measure of the average change in prices over time for goods and services purchased by households. The Bureau of Labor Statistics reports CPIs for different types of population groups such as wage earners, clerical workers, business professionals and managers, technical workers, self-employed, short-term workers, unemployed individuals, and retirees.
The CPI is an estimate of inflation as experienced by consumers in their daily living expenses. The CPI may factor in the change in the price for food, clothing, rent, fuel costs, transportation expenses, doctor visits, medicine, insurance, and other lifestyle basics which we need in our daily world.
* Producer Price Index (PPI): The Producer Price Index measures the price of goods and services at the wholesale level. There are three types of categories for calculating the PPI. These categories include crude materials, intermediate materials, and finished goods. One of the most important categories for calculating inflation rates is the “finished goods” category. Finished goods are the prices ready for sale to the end user – the consumer. Product prices at the crude or intermediate stages typically may be an early indication of future inflationary or deflationary pressures.
The financial markets tend to focus on the fluctuations of prices for all category types. Food and energy costs are usually excluded as they tend to change quicker than any other goods or services represented within the “core rate.” So, the true annual inflation rates are usually much higher than the reported rates.
* Import and Export Prices: The International Price Program measures the changes in the prices of imports and exports (excluding military goods) between America and the rest of the world. Please focus on this economic data as it relates to the tariff and trade war stories.
* Consumer Spending: It measures the spending habits of American consumers. These spending habits include data on daily expenditures, income, and consumers’ many wide-ranging preferences for certain types of goods or services.
Cash is King
Unfortunately, a high percentage of Americans today live off of credit cards and Buy Now, Pay Later (BNPL) type of debt options. Most people also purchase consumer goods with credit cards much more often than with physical cash.
There have been several prominent telephone surveys with thousands of U.S. consumers who were asked anonymously if they could come up with either $400 or $500 in actual physical cash for an unexpected emergency like a medical bill. Sadly, upwards of 60% of the surveyed American consumers in some of these polls said “No” to their ability to find this cash.
A recent study by SmartAsset included an analysis of median bank deposit data for households by state from the Bureau of Labor Statistics found that households in Hawaii had the highest median bank balance of $43,600. In contrast, households in Mississippi held just $2,000 in the bank.
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Rank / State / Median Household Cash Bank Balance
1. Hawaii: $43,599
2. New Jersey: $21,268
3. Washington: $19,035
4. Massachusetts: $17,387
5. California: $17,046
6. Minnesota: $16,834
7. Virginia: $16,695
8. Maine: $15,951
9. Colorado: $14,888
10. Montana: $14,388
11. Utah: $13,984
12. Oregon: $13,909
Ride the Inflation Wave with Real Estate
Whether our economy booms, busts, or remains fairly steady this year, it’s still quite likely that the purchasing power of our dollar will continue to fall like it has since 1913. If so, keeping the bulk of assets in cash under your mattress may not be the wisest choice besides having a “security blanket” by your side in case of an emergency.
The potential combination of rising unemployment, inflation, and rates (aka “stagflation”) is usually not a positive short-term outcome for home value trends.
Real estate investments, however, have continued to show us that it’s an exceptional hedge against inflation, while usually more than doubling in value over and above the published inflation rates.
No matter your perception of the current economic state of our economy (stagflation, disinflation, or hyperinflation), the long-term holding of real estate assets may continue to be a very wise choice through the various boom and bust cycles over a long period of time.
Rick Tobin
Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details.
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