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Sunday, January 23, 2022

Are We In For A New Phase Of 1970s-Style Stagflation? Early Signs Of A Perilous Combination Of Inflation And Economic Stagnation

Economists and experts are worried about the economic outlook for the future as it gradually turns grim. a sustained period of stagflation, an ugly grisly combination of low growth and high inflation that afflicted the 1970s, could be making a comeback.

Nouriel Roubini, credited with predicting the financial crash of 2008 says that the mild stagflation experienced earlier this year could be a precedence for a more serious recurrence shortly.

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Experts predict that the prevalent pandemic alone would be enough to usher in another phase of stagflation, driving up costs and prices across world markets. the economic outlook continues to be grim.

The Lingering Effect Of The Pandemic And The Supply Chain Situation Could Lead To Stagflation

Mohamed El-Erian, the chief economic adviser at the financial service major, Allianz, cautioned that the latest variant of the virus from Africa could affect the world economy, worsen the supply chain situation, and amplify record inflationary pressures. All leading to stagflation.

El-Erian agreed that there were deep concerns about the virus variant combined with the uncertainty across the board, leading to more travel bans and lockdowns and hurting the economy.

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He said that the market is being affected in two ways. Successive variants have led to multiple restrictions, including less travel. and this will lead to more disruptions in the supply chain and high inflation. This lethal combination of high inflation and low growth will trigger a severe bout of stagflation.

In the 1970s Jimmy Carter had to struggle to rein in stagflation. Low economic growth, rising unemployment, and high gas prices caused by the embargo imposed by the Arabs stopped him from winning on his second term.

El-Erian spoke to Jerome Powell, slated to head the Federal Reserve for the second time, to prioritize reining inflation. That is what he needs to control, he points out. another issue is the supply side that could trigger stagflation. Failure to fix the supply side could lead to contamination of the demand side.

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