Stagflation

In Context 

• The term ‘Stagflation’ oftenly mentioned in the news in recent time.

What is Stagflation?

• About:
  • It refers to an economic situation marked by stagnant economic output and high price inflation. 
  • The idea became popular during the 1970s when the U.S. economy witnessed high price inflation due to the oil shock as well as an economic recession marked by negative economic growth.  
  • It is characterised by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). 
  • It can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).

• Causes: 
  • Stagflation is characterised by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). 
  • Generally, stagflation occurs when the money supply is expanding while supply is being constrained.
• Measures: 
  • There is no definitive cure for stagflation. The consensus among economists is that productivity has to be increased to the point where it would lead to higher growth without additional inflation. 
  • Policy support for a sustained and inclusive recovery may be needed for longer.
  • The focus is likely to be on the normalisation of prudential policies and the strengthening of insolvency frameworks and restructuring mechanisms, including for the overhang of public and private debt

Source:TH