Saturday , 16 October 2021

What is Stagflation and How Will It Affect the Global Recovery?

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…

…Food is one of the largest components of household expenses in emerging economies (about 60% of global GDP)…[and,] as food prices rise, capital will be diverted into essentials… killing emerging market consumption…[which] will drag global trade. “Clouds are forming over global economic growth forecasts for 2022,” concludes the National Bank of Canada.
Editor’s Note:  The original post by Daniel Wong has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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