Filed Under: Business

Experts say stagflation is upon us. Here’s what that looks like.

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With persistent inflation at its highest level in 40 years and warnings of an economic slowdown, experts are sounding the alarm over an economic calamity. We’re not talking about recession but rather stagflation — a phenomenon that concerns economists and central banks alike.

Definition

Stagflation is an economic event where rising prices meet a slowing economy and high unemployment.

Plainly, the phrase is a play on economic stagnation and inflation.

“The worst thing to have is a growth scare at the same time as in inflation scare, but that’s what happens when central banks fall behind the curve,” economist Mohamed El-Erian said on Bloomberg.

We’ve been here before

The most remarkable stagflation period came in the 1970s, the last time inflation was actually worse than it is today. Back then, energy prices had skyrocketed over OPEC’s oil embargo in 1973, imposed over the U.S.’s support of Israel. That fueled inflation and recession for oil importers like the U.S., while unemployment also skyrocketed higher than 10% in the early ’80s.

What causes stagflation?

There are many theories on what causes stagflation, which is seen as a bit of an anomaly in economics. Conventional wisdom would indicate that high unemployment would depress demand, lowering prices. Stagflation runs counter to that assumption.

Here are three common theories of what causes stagflation:

  • Supply shocks of necessary goods
  • Too much growth in the money supply, overheating demand
  • High taxes and excessive government regulation and social programs

While no one knows for sure the root cause of stagflation, more and more, economic experts believe the country is headed there.

NEWS CLIP: the inflation risk the recession risk even the stagflation risk is quite appreciable.

NEWS CLIP: i think we are going toward a stagflation.

NEWS CLIP: we’re going to go through a painful stagflation process.

SIMONE DEL ROSARIO: WELL THAT DOESN’T SOUND GOOD. BUT WHAT IS STAGFLATION? AND WHY IS EVERYONE SO WORRIED ABOUT IT? IT’S THE WORD ON THE STREET.

STAGFLATION IS AN ECONOMIC EVENT WHERE RISING PRICES MEET A SLOWING ECONOMY AND HIGH UNEMPLOYMENT.

ECONOMIC STAGNATION. HIGH INFLATION. STAGFLATION. GET IT?

MOHAMED EL-ERIAN: the worst thing to have is a growth scare at the same time as an inflation scare but that’s what happens when central banks fall behind the curve.

SIMONE DEL ROSARIO: THE MOST REMARKABLE STAGFLATION PERIOD WAS IN THE ‘70S. YOU KNOW, THE LAST TIME INFLATION WAS ACTUALLY *WORSE THAN IT IS TODAY?

ED YARDENI: it’s getting to be a little bit of a dejavu with the ’70s all over again.

SIMONE DEL ROSARIO: BACK THEN, ENERGY PRICES SKYROCKETED OVER OPEC’S OIL EMBARGO. THAT FUELED INFLATION AND RECESSION FOR OIL IMPORTERS LIKE THE U-S…AND UNEMPLOYMENT HERE WENT ABOVE 10%.

THERE ARE MANY THEORIES ON WHAT CAUSES STAGFLATION – WHICH IS SEEN AS A BIT OF AN ANOMALY IN ECONOMICS.

SOME ECONOMISTS SAY SUPPLY SHOCKS OF NECESSARY GOODS ARE TO BLAME.

OTHERS FAULT TOO MUCH GROWTH IN THE MONEY SUPPLY, OVERHEATING DEMAND.

AND A THIRD THEORY CITES HIGH TAXES AND EXCESSIVE GOVERNMENT REGULATION AND SOCIAL PROGRAMS.

WHILE NO ONE KNOWS FOR SURE THE ROOT CAUSE OF STAGFLATION – MORE AND MORE – PEOPLE ARE SURE WE’RE HEADING THERE.

NEWS CLIP: that’s stagflation that’s not going away.

NEWS CLIP: i do believe stagflation unfortunately is the baseline.

NEWS CLIP: it’s the s word the stagflation word you really worried about that today? I think we’re in it.

SIMONE DEL ROSARIO: NOW THAT YOU’VE GOT A GRASP ON STAGFLATION – WHAT TERM DO YOU WANT EXPLAINED NEXT IN WORD ON THE STREET?

LET ME KNOW IN THE COMMENTS.

With persistent inflation at its highest level in 40 years and warnings of an economic slowdown, experts are sounding the alarm over an economic calamity. We’re not talking about recession but rather stagflation — a phenomenon that concerns economists and central banks alike.

Definition

Stagflation is an economic event where rising prices meet a slowing economy and high unemployment.

Plainly, the phrase is a play on economic stagnation and inflation.

“The worst thing to have is a growth scare at the same time as in inflation scare, but that’s what happens when central banks fall behind the curve,” economist Mohamed El-Erian said on Bloomberg.

We’ve been here before

The most remarkable stagflation period came in the 1970s, the last time inflation was actually worse than it is today. Back then, energy prices had skyrocketed over OPEC’s oil embargo in 1973, imposed over the U.S.’s support of Israel. That fueled inflation and recession for oil importers like the U.S., while unemployment also skyrocketed higher than 10% in the early ’80s.

What causes stagflation?

There are many theories on what causes stagflation, which is seen as a bit of an anomaly in economics. Conventional wisdom would indicate that high unemployment would depress demand, lowering prices. Stagflation runs counter to that assumption.

Here are three common theories of what causes stagflation:

  • Supply shocks of necessary goods
  • Too much growth in the money supply, overheating demand
  • High taxes and excessive government regulation and social programs

While no one knows for sure the root cause of stagflation, more and more, economic experts believe the country is headed there.

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