stagflation

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Stagflation

A period of slow economic growth and high unemployment with rising prices (inflation).

Stagflation

High inflation in a period of low GDP growth. Many economists thought that this was impossible, but the oil embargo of the 1970s contributed to a staggering increase in oil and food prices, which fueled inflation and hindered economic growth. Stagflation is difficult to control, as focusing on controlling inflation could hurt growth even further, while trying to ease credit to encourage growth could intensify inflation. The term is a portmanteau of stagnation and inflation.

stagflation

An economic condition that is characterized by slow growth, rapidly rising consumer prices, and relatively high unemployment.

Stagflation.

Stagflation results when inflation increases significantly despite a slowdown in the economy and shrinking demand for products and services that results from rising unemployment and low consumer confidence.

This combination of stagnation and inflation has a crippling effect on economic and political stability. As the central bank strives to stimulate the economy by increasing liquidity and cutting interest rates, it risks fueling inflation, which acts as a drag growth.

At the same time, focusing on controlling inflation rather than easing credit may increase the risk of sending the economy into an extended recession.

A vivid example in recent US history began during the OPEC crisis of 1973 and 1974 when oil and food prices soared, and unemployment grew, while the economy contracted and the stock market lost value. In 1980, the inflation rate was 13.9% rather than the long-term average of 3%, and the prime rate reached 21.5%.

stagflation

a situation of depressed levels of real output combined with increases in prices (INFLATION). Stagflation is caused by the dual forces of:
  1. a deficiency in AGGREGATE DEMAND relative to POTENTIAL GROSS NATIONAL PRODUCT (see DEFLATIONARY GAP); and
  2. rising FACTOR INPUT costs (see COST-PUSH INFLATION).

Stagflation was a particular problem in many countries during the 1970s and early 1980s as a result of the combined effect of cost-push inflationary pressures emanating from the oil price increases of 1973 and 1979 and the deflationary consequences of reduced real purchasing power in the oil-consuming countries that accompanied these increases. This was exacerbated by the development of higher inflationary expectations.

Orthodox FISCAL POLICY and MONETARY POLICY, accustomed to an apparent trade-off between inflation and employment/output (see the PHILLIPS CURVE), were found wanting in the new situation, and many countries turned to alternative approaches, for example, MONETARISM and SUPPLY-SIDE ECONOMICS.

stagflation

A slang expression for a period of stagnation and inflation.

References in periodicals archive ?
US inflation accelerated in June to its fastest rate since the aftermath of Hurricane Katrina in 2005 while workersCO earnings slumped, compounding the stagflationary dilemma facing the Federal Reserve, Reuters reported.
* The stagflationary mix will be especially acute in the United States, whose GDP will grow by only 1.3 per cent this year while prices will rise by 4.3 per cent.
Supermarkets face falling sales and lower margins in a tougher "near stagflationary" environment which could lead to irrational competition for market share, according to investment bank Goldman Sachs.
Policymakers adopted monetarist ideas partly because of the deficiencies of the Keynesian framework in stagflationary circumstances as noted above, and partly because a new way of anchoring prices in the economy was needed following the widespread move to floating exchange rates after the collapse in the early 1970s of the Bretton Woods framework of fixed exchange rates between the major economies.
Notwithstanding the upcoming VAT hike in Germany, which should impart a mild stagflationary shock to the euro area in early 2007, the central scenario for the next two years is one of stable growth, somewhat above potential, and mild inflation, in a context where the shortfall of aggregate demand is being progressively worked off.
Prior to the mid 1980s, Israel's economic structure was "characterized by a combination of corporate concentration and stunted growth gave rise to military Keynesianism." (39) Under these conditions "corporate concentration is typically maintained and enhanced by expanding the depth of accumulation: the large corporations try to raise their profit margins above those of smaller periphery firms and the ensuing profit competition often culminates in stagflationary spiral." (40)
Whereas, critics argue that devaluation is stagflationary, reducing real output and increasing domestic rate of inflation and fails to improve the current account of the BOPs [Bird (1983)].
Barclays Bank of Zimbabwe and National Merchant Bank of Zimbabwe Holdings enjoy the largest market share in that country, but like other banks have been affected badly by sustained stagflationary conditions, i.e., plunging economic output amid hyperinflation.
The collapse of Bretton Woods, stagflationary crises in the advanced capitalist world and the rise of East Asia contributed to the perception that policy structures had to change.
Indeed, for all the surface turmoil, the high-risk economy has a subterranean stability that must surprise anyone who remembers the stagflationary 1970s.
Gerhard Schroeder leads Germany with a stagflationary combination of socialist economics and old-school America baiting.