Stagflation is ‘the big bogeyman out there’ — and many increasingly fear its return

Just a few months ago, investors appeared relatively sanguine about the dreaded prospect of stagnant economic activity and rising inflation.

Oil prices surging to the brink of $100 per barrel and the specter of higher for longer inflation have renewed concern about stagflation risks, however.

“I think that the big bogeyman out there is stagflation, that we get into this spirit of high inflation and low growth,” Mel Lagomasino, CEO of WE Family Offices, told CNBC’s “Squawk Box” on Wednesday.

Lagomasino cited comments from Minneapolis Fed President Neel Kashkari, who said in an essay earlier this week that U.S. interest rates may have to go “meaningfully higher” to bring down stubbornly sticky inflation.

Kashkari reaffirmed this message when speaking to CNBC on Wednesday, saying that he was not sure if interest rates have been raised enough to successfully fight price growth.

“It looks like they might not just be higher for longer, they might be quite a bit higher for longer,” Lagomasino said, before adding that she believes a recession is “definitely” on the horizon.

Stagflation was first recognized in the 1970s, when an oil shock prompted an extended period of higher prices but sharply falling economic growth.

The phenomenon is characterized by slow growth, high unemployment and soaring inflation. The one ingredient currently missing is the high unemployment, still relatively low at 3.8% — although there are fears that mounting layoffs may mean this could soon change.

Market participants are worried that surging oil prices could keep inflation higher for longer, amplifying the risk of stagflation.

Brent crude futures have jumped more than $20 a barrel in the three months to late September, a rally that has put a return to $100 sharply…