According to…[the] National Bank of Canada…the risk of global stagflation is surfacing due to rising oil prices, soaring food costs, and slow economic growth…[which] threatens to undermine the global recovery.
What is Stagflation?
Stagflation is high inflation during a recession, when it typically shouldn’t be seen.
- In a healthy scenario, inflation is the result of rising productivity and a tight job market. It’s viewed as a side effect of too much success.
- During stagflation, inflation rises with high unemployment and slow growth. It’s often the result of lower confidence in a currency. Rising inflation for essential goods means diverting spending from other areas of spending. Diverted cash diverts revenues for certain companies, which can further slow growth.
Early Signs Of Stagflation Have Begun To Appear
One of the most well-known periods of global stagflation was the early 1970s. Oil trade restrictions resulted in rising energy costs, which trickled into most goods. This made already elevated inflation even worse, especially for food. Since this was during a recession, it exacerbated the difficulty of unemployment…
The National Bank sees some signs of stagflation beginning to appear in the economy. Like in the 1970s, it’s starting with a shock to energy prices due to a shortage, and rising carbon permit costs in OECD countries and this can slow global trade. in addition, the pandemic recession is still raging on, with elevated unemployment…
Rising Global Food Prices May Slow Global Economic Growth
Global food prices are rising at an unusually fast rate these days, and it’s not a base effect. The United Nations Food Price Index shows the basket price of food is up 30% year to date, from it’s 2020 average…[which is] the highest level of growth since the 1970s…