Stagflation
Stagflation is the dreaded combination of economic stagnation and high inflation – the worst of both worlds.
Why so dangerous?
• Inflation: prices rise, purchasing power falls
• Stagnation: the economy doesn't grow, jobs are at risk
• The dilemma: raising interest rates (against inflation) would slow the economy even more. Cutting rates (for growth) would fuel inflation
Historical example: the 1970s
• Oil crisis of 1973: energy prices multiplied
• Inflation in Germany: over 7%
• Unemployment: rose sharply
• Economic growth: close to zero
2022 – stagflation fears: the combination of an energy crisis (Russia sanctions), high inflation (8%+) and fears of recession was strongly reminiscent of the 1970s. Fortunately the economy recovered faster than feared.
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