Dust off the disco ball and rolled up dollar bills, because the 1970s are back. At least the signs of 70s-style stagflation are forming, according to one of Canada’s Big Six banks. National Bank of Canada (NBC) chief economist Stéfane Marion warned clients of the rising risk of global stagflation. Rising oil prices, soaring food costs, and slow economic growth are all surfacing. This growing issue 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.
It might be obvious why this is an issue, but let’s just spell it out for everyone. 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…read more.