Outside In | Pandemic, Ukraine war and China shutdowns top laundry list of global stagflation risk factors
- On top of the obvious but potentially short-term stagflationary forces in play are far more structural, long-term issues that amplify the danger of protracted inflation and sharply reduced economic growth
In January 2008, nine months before the Lehman Brothers crash that triggered what we now recall as the global financial crisis, economist Joseph Stiglitz warned that “stagflation cometh”.
Stagflation is rightly feared. This combination of high inflation and economic stagnation not only creates severe hardship but also seems hard to cure.
When the oil shock of the early 1970s first jolted inflation in OECD countries above 5 per cent – lifting it to a peak of around 15 per cent in 1980 when US Federal Reserve chair Paul Volcker stepped in to staunch the slide – it took 25 years for inflation to dip below 5 per cent again.
As International Monetary Fund managing director Kristina Georgieva observes: “In economic terms, growth is down and inflation is up. In human terms, people’s incomes are down and hardship is up.”