What cause stagflation in the 2020s?
In: 0
Stagflation is a combination word of inflation plus stagnation. Inflation being price rises, and stagnation being low or no growth and possibly high unemployment. Currently we have all of this but not yet necessarily high unemployment.
It seems that what is called a supply side shock can cause stagflation – increasing prices while suppressing growth. It seems that disruption caused by COVID ( and potentially some of the policies to help with the previous financial crisis) and by the war in Ukraine have led to problems with the supply of various goods ( such as electronic complements needed for certain products) and a price rise in energy and food resources as a direct result to some extent just as a result of the way the market prices resources.
These price rises will tend to make people and companies more restrained in their spending and investment thus reducing demand and growth. The problem is that the things that governments do to restrain inflation such as making borrowing more expensive tend to reduce growth by reducing investment and spending. And the things that a government can do to increase growth such as increasing spending , cutting taxes etc tend to increase inflation. In order to get out of it we really need an increase in productivity rather than just spending , but that has been pretty flat in much of the West at least for a while now.
In brief COVID and the war have resulted in increased prices and that , along with associated supply difficulties and related central bank responses will be reducing spending and growth?
Latest Answers