If the prices of oil, energy and other products rise, but the economic engine falters at the same time, stagflation threatens. The phenomenon is explained in five points.
What is stagflation? This is an unusual and uncomfortable combination of stagnation and inflation: it means that the prices of oil, energy, electronic products and much more are rising, and inflation is rising, even though economic growth is crippling at the same time. This rarely happens. Whether the world is heading toward this more and more stagflation is currently being debated in specialized circles.
When did that happen before? The last stagflation occurred in the 1970s. The trigger at the time was the 1973 oil shock: Oil prices rose, and with them, inflation. But this has slowed economic growth – and here is the ominous combination of stagnation and inflation.
How was that at the time? In the 1970s, economic life was more dependent on oil than it is today. And this appeared in concrete terms in the everyday life of many people: heating oil and gasoline suddenly became more expensive. But also the production of goods in factories has become more expensive due to higher energy costs, which in turn has led to higher prices for these goods in the shop. The result: high inflation while economic growth has slowed.
How do you get out again? Central banks raised the key interest rate: over time, this enabled them to break the rise in inflation. Prices have returned to normal and economic growth is gradually starting to recover again. At that time, stagflation lasted about two to three years.
Is this also threatened today? In fact, inflation has now risen significantly, especially in the United States, while economic growth has somewhat stalled. The reason for this is bottlenecks in global supply chains.
In addition, it is currently difficult to assess the economic consequences of the novel virus variant Omikron. However, the majority of experts currently assume that at least the global economy is not heading into an extended stagflation. They believe that the economy can remain somewhat resilient while inflation will return to normal over the next few months.
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