29 Oct 2024        09:54:32 am

Economics

Stagflation

Tags : Stagflation

Topic: Monetary Policy

Why in the news?

• Russia facing stagflation threat as war effort slows growth.
• Moscow has increased government spending by almost 50% since sending troops into Ukraine, pushing up growth and wages. 
• Unemployment is at a record low and consumer confidence is its highest in 15 years.
• But an exodus of skilled and unskilled workers, who fled mobilization or joined the army, has created millions of unfilled vacancies. 
• Sanctions on Western technology have also hit productivity and damaged supply chains

Source: The Hindu 

About Stagflation:

• It means a situation characterized by simultaneous increase in prices and stagnation of economic growth.
• The term ‘Stagflation’ was coined by Iain Macleod, a Conservative Party MP in the United Kingdom, in November 1965.
• It is described as a situation in the economy where the growth rate slows down, the level of unemployment remains steadily high and yet the inflation or price level remains high at the same time.
• It is dangerous for the economy.
• In a usually low growth situation, central banks and governments try to stimulate the economy through higher public spending and low interest rates to create demand.
• These measures also tend to elevate prices and cause inflation. So, these tools cannot be adopted when inflation is already running high, which makes it difficult to break out of the low growth-high inflation trap.

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