A participant carries a flyer during the Citi Career Fair recruitment event on Thursday, February 27, 2025 in Sacramento, California, USA. The U.S. Bureau of Labor Statistics is scheduled to release unemployment rate statistics on March 7th.
Davis Paul Morris | Bloomberg | Getty Images
The chance that the economy will suffer from stagflation, a severe combination of high inflation and unemployment, has risen from 11% to nearly 40% in almost three months, according to Karshi traders.
The pessimistic outlook for the end of this year comes after the Bureau of Labor Statistics announced on Tuesday that the consumer price index in April reached 3.8% year over year, the highest since May 2023. Last month, wholesale prices also recorded their biggest annual increase since 2022.
In a separate contract, Kalsi traders predicted there was a more than 65% chance that inflation would be at least 4.5% this year, well above the FactSet consensus of 2.8%.
The oil supply shock that caused disastrous stagflation in the 1970s has been compared to the high oil prices and inflation that the economy is seeing today.
“If there is a recession and inflation rises, there could be a short period of stagflation (inflation rising below potential growth), but it won’t be like what happened in the 1970s and early 80s,” Eugenio Aleman, chief economist at financial firm Raymond James, said in March.
According to the latest employment statistics from the BLS, the unemployment rate remained at 4.3% in April. It has exceeded 4% since May 2024.
A so-called soft landing, where the economy gradually slows down without facing high inflation and falling into recession, is the least likely, Kalsi traders said.
The probability of ideal economic turnout reached a high of 55% in early March, fell rapidly after a few weeks, and fell again in early May. Currently, that percentage is only 21%.
Polymarket traders are predicting a different reality, pegging stagflation at 22% and a soft landing at 32% as of Thursday.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
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