{"id":551678,"date":"2022-07-06T13:54:27","date_gmt":"2022-07-06T13:54:27","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2022\/07\/06\/enterprise-explains-stagflation\/"},"modified":"2022-07-06T13:54:27","modified_gmt":"2022-07-06T13:54:27","slug":"enterprise-explains-stagflation","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2022\/07\/06\/enterprise-explains-stagflation\/","title":{"rendered":"Enterprise Explains: Stagflation"},"content":{"rendered":"

<\/a> What is stagflation, and what could it look like in the 2020s?<\/strong> Russia\u2019s invasion of Ukraine has exacerbated the slowdown in global economic recovery, as well as disruptions in the global supply chain, both of which the world has already been coping with since the onset of the covid-19 pandemic. Developed and developing economies alike are now experiencing their highest inflation rates in decades<\/a>, and global prices of commodities are soaring. This toxic combination of global crises is affecting global output levels and provoking fears<\/a> of a bout of stagnation reminiscent of the 1970s.<\/p>\n

The dictionary definition: <\/strong>The term \u201cstagflation\u201d was first used in the 1960s by British politician Ian Macleod, when he was describing<\/a> the parallel crises of inflation and economic stagnation during a time of economic stress in the UK. Since then, it has been used to describe periods of heightened inflation that coincides with slowing economic growth. This is usually accompanied with higher unemployment and tighter monetary conditions.<\/p>\n

How it feels to be in a period of stagflation: For business owners, it\u2019s a nightmare.<\/strong> Prices rise but consumers\u2019 purchasing power dwindles, and low economic growth hits business confidence. It\u2019s equally bad for the consumer, who faces both a rise in the cost of living and increased job insecurity.<\/p>\n

It also puts policymakers in a tough spot\u2026: <\/strong>Few monetary tools are available to address stagflation. While the conventional wisdom for countering high inflation is for central banks to hike interest rates, high borrowing costs will further depress consumer demand and make running a business even more expensive. On the other hand, keeping monetary policies loose risks pushing prices even higher.<\/p>\n

\u2026especially when global debt levels are already high: <\/strong>\u201cCentral bankers can take policy normalization only so far before risking a financial crash in debt and equity markets,\u201d with debt levels at record levels, Nouriel Roubini, professor of economics and international business at New York University Stern School of Business, tells the Financial Times<\/a>.The World Bank echoed the warning in a report (pdf)<\/a> last month, where it explained that unlike in the \u201870s, stagflation today would occur against the backdrop of \u201cheightened financial vulnerabilities, including stretched asset prices and high debt levels, which could magnify any growth slowdown.\u201d<\/p>\n

How worried should we be? Fairly worried. <\/strong>The last time the global economy suffered from stagflation, things looked eerily similar to how they look now. In the \u201870s, the trigger for stagflation was a spike in oil prices after the Arab oil embargo following the 1973 war. Inflation hit double-digits and settled for almost a decade and the US \u2014 along with much of the world \u2014 underwent a recession that lasted for more than a year.<\/p>\n

But there are also notable differences between how the economy is now and how it was back then:<\/strong> Most analysts and economists, including the World Bank, do not expect an exact rerun of the 1970s. To summarize the reasons why we\u2019re \u2014 slightly \u2014 better off, according to a the World Bank and the analysts who spoke with the FT and CNBC<\/a>:<\/p>\n