The US economy is likely to weaken even further next year, but inflation is mainly contained to oil and other commodities, Merrill Lynch economist David Rosenberg told CNBC.
"I actually believe that `09 is going to be weaker than `08," the well-known economist said. "It's not going to be a straight line; not every quarter is going to be bad."
"The capital-goods sector is decent, exports are decent," Rosenberg added. "In terms of the credit crunch, are the numbers coming in broadly above my expectations of three months ago? There's no question, but let's not sugar-coat the situation. It is fraying at the edges right now."
He also said he saw something ominous in the otherwise-positive first-quarter GDP report, something he didn't see in 2001, or in nearly two decades: A slowdown in sales of durable and semi-durable goods.
"Everything from a sweater to an automobile was actually negative, 3 percent at an annual rate in unit terms," he said.
Rosenberg predicted the unemployment rate will top 6 percent by the end of 2008.
"People talk about 'stagflation,'" he said. "I don't think they're using the right term. The actual true definition of stagflation is not higher inflation and slower growth, it's actually higher inflation and slower potential growth."
In this instance, he says, the American economy has actually imported its inflation.
"We've imported this commodity inflation," he said. "Outside of commodities, when you go to the CPI, you'll see a whole swath of stuff that's still running negative year-on-year, that was running 10 to 15 percent price growth rates back in the 1970s."
So he's not a total bear.
"The one thing that is very unusual are the very positive supply-side dynamics," he said. "Non-farm business productivity running at 3 percent year-over-year never happened before. We've got some cyclical problems to work through; am I long-term bullish? Absolutely."