Popular
What is the Wassenaar Arrangement?
Recognizing Gaslighting
What is China’s ‘Wolf Warrior’ Diplomacy?
Latest on Tunisia and Arab Spring
What are VPNs, and why are they in the news always?
Few terms coming up in focus to understand the troubled global economy
U.S. Fed interest rate hike and its impact on India
Dispute between Armenia and Azerbaijan – The past and the present 
Why are special drawing rights (SDR) in the news always?
The world faces a growing stagflationary storm
Politics Science News
  • Home
  • Topics
    • Economics Environment Global Reports/Agreements In pictures Intl. Organisations Personalities Politics Science & Tech Theory / Facts World World History All
      Economics

      Few terms coming up in focus to understand…

      29th July 2022

      Economics

      Why are special drawing rights (SDR) in the…

      23rd May 2022

      Economics

      The world faces a growing stagflationary storm

      5th May 2022

      Economics

      What is and Why De-Dollarisation?

      22nd April 2022

      Economics

      Explained – The U.S. Federal Reserve to increase…

      8th February 2022

      Economics

      All you need to know about the Natural…

      24th January 2022

      Economics

      The Truth about “Tax the Rich”

      27th December 2021

      Economics

      Venezuela Crisis

      2nd October 2021

      Environment

      World Air Quality Report 

      28th March 2022

      Environment

      Why should we be worried about topsoil erosion?

      21st March 2022

      Environment

      Effects of Climate Change

      30th July 2021

      Environment

      Implications of a Tragic Love Story – Coral…

      4th June 2021

      Global Reports/Agreements

      IPCC Report 2022

      8th March 2022

      Global Reports/Agreements

      The Climate Change Negotiations – UNFCCC and Paris…

      3rd August 2021

      Global Reports/Agreements

      Understanding World Happiness Report

      15th April 2021

      In pictures

      World War 2 Summary (1939 to 1945)

      9th July 2020

      In pictures

      World War I – 1914-1918

      30th June 2020

      Intl. Organisations

      What is the Wassenaar Arrangement?

      5th January 2023

      Intl. Organisations

      International Energy Agency (IEA)

      15th April 2022

      Intl. Organisations

      Food and Agriculture Organization (FAO)

      12th April 2022

      Intl. Organisations

      United Nations Human Rights Council (UNHRC)

      10th April 2022

      Intl. Organisations

      What is the G20 Summit?

      31st October 2021

      Intl. Organisations

      What is QUAD? | Quadrilateral Security Dialogue

      10th October 2021

      Intl. Organisations

      SCO – What is Shanghai Cooperation Organisation?

      28th September 2021

      Intl. Organisations

      G7 GROUP

      24th September 2021

      Personalities

      Gramsci Prison Notebooks

      18th November 2021

      Personalities

      John Stuart Mill: Theories

      10th September 2021

      Personalities

      Understanding Rousseau, Jean-Jacques

      4th July 2021

      Personalities

      John Locke – Father of Liberalism

      14th June 2021

      Personalities

      Hobbes Leviathan – Political Philosophy of Hobbes

      22nd May 2021

      Personalities

      Chanakya Strategies in administration

      30th March 2021

      Personalities

      Who was Machiavelli? – The Prince Summary and…

      3rd March 2021

      Personalities

      Aristotle – A Greek Philosopher

      25th January 2021

      Politics

      What is China’s ‘Wolf Warrior’ Diplomacy?

      21st October 2022

      Politics

      Latest on Tunisia and Arab Spring

      18th August 2022

      Politics

      Dispute between Armenia and Azerbaijan – The past…

      27th May 2022

      Politics

      Sudan’s Nightmare: The Conflict Explained

      9th January 2022

      Politics

      What’s happening between Ukraine and Russia?

      12th December 2021

      Politics

      China Taiwan Conflict

      7th October 2021

      Politics

      Taliban taking over Afghanistan

      18th August 2021

      Politics

      Armenian Genocide – What Happened?

      24th April 2021

      Science & Tech

      What are VPNs, and why are they in…

      29th July 2022

      Science & Tech

      Does Splinternet mean the end of the Internet?

      6th April 2022

      Science & Tech

      What you must know about the world’s first…

      2nd January 2022

      Science & Tech

      Omicron: Everything you need to know about COVID-19…

      5th December 2021

      Science & Tech

      Dopamine Happy Hormone

      14th August 2021

      Science & Tech

      How to avoid trans fat?

      7th August 2021

      Science & Tech

      Mental Health during the COVID19 pandemic 

      27th June 2021

      Science & Tech

      CRISPR Nobel Prize 2020 – What is it…

      27th December 2020

      Theory / Facts

      What is Fascism?

      21st July 2021

      Theory / Facts

      Banality of Evil

      14th July 2021

      Theory / Facts

      Evolution of Western Political Thought

      19th December 2020

      Theory / Facts

      What is Game Theory in Politics?

      10th December 2020

      Theory / Facts

      Demarcation of Powers and Responsibilities

      13th September 2019

      Theory / Facts

      Realist vs Idealist

      2nd September 2019

      World

      The Truth about Chernobyl Nuclear Disaster

      28th February 2022

      World

      Djokovic Visa Controversy – More Than What Meets…

      17th January 2022

      World

      Happiest Countries in the World – Top 10

      5th April 2021

      World

      5 Women making history in 2021 – Women…

      21st March 2021

      World

      Five demonstrations that changed history

      5th February 2021

      World

      Myanmar Story

      2nd February 2021

      World

      India and Global Nuclear Order

      31st January 2021

      World

      Nuclear Proliferation

      30th January 2021

      World History

      Israel Palestine Conflict

      11th May 2021

      World History

      What is Cold War? – Cold War Summary

      11th February 2021

      World History

      Russian Revolution

      10th January 2021

      World History

      The Soviet Union Collapse and End of Cold…

      30th December 2020

      World History

      French Revolution – What happened?

      3rd December 2020

      World History

      American Revolution Summary

      28th November 2020

      World History

      South Korea vs North Korea

      12th September 2020

      World History

      World War 2 Summary (1939 to 1945)

      9th July 2020

      Topics

      What is the Wassenaar Arrangement?

      5th January 2023

      Topics

      What is China’s ‘Wolf Warrior’ Diplomacy?

      21st October 2022

      Topics

      Latest on Tunisia and Arab Spring

      18th August 2022

      Topics

      What are VPNs, and why are they in…

      29th July 2022

      Topics

      Few terms coming up in focus to understand…

      29th July 2022

      Topics

      Dispute between Armenia and Azerbaijan – The past…

      27th May 2022

      Topics

      Why are special drawing rights (SDR) in the…

      23rd May 2022

      Topics

      The world faces a growing stagflationary storm

      5th May 2022

  • NewsFeed
  • Miscellaneous
  • Videos
  • Archives
Economics

The world faces a growing stagflationary storm

by Admin 5th May 2022
5th May 2022
Stagflation
211

What is Stagflation?

When economic activity slows, demand for goods and services falls; when demand falls, the manufacturer’s profit declines. Unemployment increases. But prices are low, and so is inflation.

Therefore, slow economic growth is expected to increase unemployment but should not result in rising prices (inflation).

But stagflation refers to slow growth and high unemployment along with high inflation. This is a rare economic situation.

Stagflation can result when the economy faces a supply shock, for example, a rapid rise in oil prices. In such a situation, prices increase, making production costlier and less profitable, thus slowing economic growth.

For households, stagflation means people are earning less money while spending more on everything. As consumer spending slows, corporate revenue falls, increasing the overall effect on the economy. This is why this phenomenon is considered bad, and there is no easy way out of it.

Present Scenario

Given that COVID is retreating, businesses are reopening, and life looks to be returning to normal, the economy should be rising right now. Why isn’t this the case? One word answer – inflation. Rising prices of everything from food to gas to airline tickets are silently killing this economy. The Russia-Ukraine war further adds to long-term problems causing higher inflation and slowing growth.

Many economists and experts believe the world is on the brink of entering a “stagflationary” period. According to the World Bank’s latest Commodity markets outlook, the world has experienced the largest spike in energy prices since the 1973 oil crisis, as well as the largest increase in food and fertilizer prices since 2008. The World Bank has warned that price shocks caused by Russia’s invasion of Ukraine will last at least until the end of 2024.

Russia is the world’s largest exporter of natural gas and fertilizer, as well as the world’s second-largest crude oil exporter. Together with Ukraine, it contributes to roughly one-third of world wheat exports, 19% of corn exports, and 80% of sunflower oil exports.

What happens during stagflation?

Stagflation happens when inflation exists in tandem with slow economic growth and high unemployment. Typically, these economic conditions don’t occur together, i.e., unemployment and inflation tend to be inversely correlated. So, as unemployment rates increase, inflation usually decreases and vice versa. 

Inflation and unemployment have historically had an inverse relationship, as depicted by the Phillips curve. Low unemployment is associated with higher inflation, whereas high unemployment is associated with lower inflation and even deflation. This inverse relationship makes logical sense. When unemployment is low, more consumers have more money to spend on things. Demand for commodities rises, and as demand rises, so do prices. During periods of high unemployment, customers buy fewer goods, which puts downward pressure on prices and reduces inflation.


Once, the US government imposed wage and price restrictions, which limited the prices that businesses could charge their customers. Despite rising production costs, businesses were unable to boost prices in order to bring revenues in line with costs. Therefore, in order to stay profitable, they were forced to decrease expenses by reducing payrolls. The jobs were lost, resulting in a positive correlation between inflation and unemployment.

Economists offer two explanations for why stagflation occurs. First, stagflation can occur when the economy is subjected to a supply shock. In such a situation, prices rise, making production more expensive and less lucrative, reducing economic growth. According to a second argument, stagflation might be caused by inadequate economic policies. For example, the government can enact a policy that harms industries while rapidly increasing the money supply. The occurrence of these policies at the same time may result in slower economic development and greater inflation.

Many people are concerned that today’s stagflationary conditions will continue to define the global economy, resulting in greater inflation, reduced growth, and perhaps recessions in many countries.

Causes of Stagflation

  1. The Covid-19 forced many sectors to lock down and disrupt global supply chains. For example, throughout the pandemic, there have been supply shocks in:
  • Labor, with fewer people working
  • Goods, for example, semiconductor shortages, started even before the pandemic.
  • Services, as people postponed elective surgeries and other health-care procedures.
  1. Then came Russia’s invasion of Ukraine, which drove up the cost of oil, industrial metals, food, and fertilizers.
  2. And now, China has imposed severe Covid-19 lockdowns in major economic centers like Shanghai, causing more supply-chain delays and transportation bottlenecks.
  3. Demographic aging in advanced economies and emerging markets (such as China, Russia, and South Korea) will continue to reduce labor supply, which will cause wage inflation. Furthermore, because the elderly tend to spend their savings without working, the rise of this generation will contribute to inflationary pressures while limiting the economy’s growth potential.
  4. The ongoing reaction against immigration in advanced economies will restrict labor supply while pushing salaries upward.
  5. Similarly, the emerging cold war between the United States and China will have far-reaching stagflationary effects. Decoupling between China and the United States means fragmentation of the global economy, balkanization of supply chains, and restrictions on trade in technology, data, and information – all of which are key elements of future trade patterns.
  6. Climate change will also cause stagflation. Droughts, for example, harm crops, ruin harvests, and raise food prices, just as hurricanes, floods, and rising sea levels devastate capital stocks and disrupt economic activity.
  7. Reduced use of fossil fuels and rapid decarbonization has resulted in underinvestment in carbon-based infrastructure before renewable energy sources have reached a sufficient scale to compensate for a reduced supply of fuels. Sharp price increases in energy are unavoidable under these conditions.
  8. Then there’s cyberwarfare, which may create major industrial disruptions, as recent attacks on pipelines and meat processors have demonstrated. Such incidents are expected to become more frequent and severe over time. Firms and governments will need to spend hundreds of billions of dollars on cybersecurity to defend themselves, adding to the expenses that will be passed on to consumers.
  9. These factors will increase the backlash against extreme income and wealth inequalities, perhaps leading to increased fiscal spending to help workers, the jobless, vulnerable minorities, and the “left behind.”
  10. Large-scale armed conflicts pose a threat to global trade and industry. Today, Russia is pitted against Ukraine and the West. Tomorrow, Iran may go nuclear, North Korea could engage in further nuclear brinkmanship, or China could seek to capture Taiwan. Furthermore, the sanctions employed to deter and punish state aggressiveness are stagflationary.
  11. Finally, de-dollarization causes stagflation. It not only causes significant friction in international trade in products, services, commodities, and capital; it also pushes US competitors to diversify their foreign-exchange reserves away from dollar-denominated assets. It has the potential to build regional monetary systems over time, further splitting global trade and finance.

The new reality the world faces is a growing stagflationary storm.

previous post
What is and Why De-Dollarisation?
next post
Why are special drawing rights (SDR) in the news always?

Related Articles

Few terms coming up in focus to understand...

29th July 2022

Why are special drawing rights (SDR) in the...

23rd May 2022

What is and Why De-Dollarisation?

22nd April 2022

Explained – The U.S. Federal Reserve to increase...

8th February 2022

All you need to know about the Natural...

24th January 2022

The Truth about “Tax the Rich”

27th December 2021

Venezuela Crisis

2nd October 2021

What is Bitcoin?

17th February 2021

GST explained with examples – Goods and Services...

3rd January 2021

Currency Wars ( beggar-thy-neighbour policy )

12th September 2019

Recent Posts

  • What is the Wassenaar Arrangement?

    5th January 2023
  • Recognizing Gaslighting

    10th December 2022
  • What is China’s ‘Wolf Warrior’ Diplomacy?

    21st October 2022
  • Latest on Tunisia and Arab Spring

    18th August 2022
  • What are VPNs, and why are they in the news always?

    29th July 2022

Subscribe Newsletter

Subscribe my Newsletter for new blog posts, tips & new photos. Let's stay updated!

NewsFeed

  • Elon Musk – Twitter will open source all code used to recommend tweets on March 31st

    19th March 2023
  • WHO’s Global Report on how much sodium is healthy for you

    15th March 2023
  • What is CAR T-cell therapy for cancer treatment?

    11th March 2023
  • The United Nations countries recently agreed to the High Seas Treaty after more than a decade of talks

    7th March 2023
  • Proton beam therapy is used to successfully treat a 62-year-old woman with a rare brain tumor

    3rd March 2023
  • What are neutrinos?

    1st March 2023
  • Russia suspends the “New START”: Nuclear arms control treaty with the US  

    25th February 2023
  • Muons can go through China’s ancient Xi’an Fortress Wall

    21st February 2023
  • WMO report on rising sea levels around the world and what it means

    18th February 2023
  • Astronomers are trying to understand these observations: a potentially habitable mass planet, “prominence” on the sun, and a ring around dwarf planet Quaoar

    13th February 2023

Article Archives

Editor’s Picks

  • International Organisations List

    7th October 2020

Social Counter

facebook Like
instagram Follow Us

Popular Posts

  • 1

    World Economic Forum (WEF)

    27th January 2021
  • 2

    China Taiwan Conflict

    7th October 2021
  • 3

    European Union

    20th October 2019
  • 4

    Sunni and Shia Differences and ISIS Conflict

    1st October 2019
  • 5

    Armenia-Azerbaijan Conflict

    9th October 2020

Posts Slider

What is the Wassenaar Arrangement?

5th January 2023

Recognizing Gaslighting

10th December 2022

What is China’s ‘Wolf Warrior’ Diplomacy?

21st October 2022

Latest on Tunisia and Arab Spring

18th August 2022

What are VPNs, and why are they in...

29th July 2022

Few terms coming up in focus to understand...

29th July 2022

U.S. Fed interest rate hike and its impact...

17th June 2022

Dispute between Armenia and Azerbaijan – The past...

27th May 2022

Why are special drawing rights (SDR) in the...

23rd May 2022

The world faces a growing stagflationary storm

5th May 2022

What is and Why De-Dollarisation?

22nd April 2022

International Energy Agency (IEA)

15th April 2022

Food and Agriculture Organization (FAO)

12th April 2022

United Nations Human Rights Council (UNHRC)

10th April 2022

Does Splinternet mean the end of the Internet?

6th April 2022

Quote

"unexamined life is not worth living" - SOCRATES

"law is a reason free from passions"- ARISTOTLE

"he who wishes to be obeyed must know how to command"- MACHIAVELLI

"be kind, for everyone you meet is fighting a hard battle"- PLATO

"prepare for the worst; expect the best; and take what comes"- HANNAH ARENDT

"he who knows only his own side of the case knows little of that"- J S MILL

  • Facebook
  • Instagram
  • Youtube
  • Topics
  • NEWSFEED
  • Videos
  • Miscellaneous
  • Contact
  • Privacy Policy

@2022 All Right Reserved

Politics Science News
  • Home
  • Topics
    • Economics Environment Global Reports/Agreements In pictures Intl. Organisations Personalities Politics Science & Tech Theory / Facts World World History All
      Economics

      Few terms coming up in focus to understand…

      29th July 2022

      Economics

      Why are special drawing rights (SDR) in the…

      23rd May 2022

      Economics

      The world faces a growing stagflationary storm

      5th May 2022

      Economics

      What is and Why De-Dollarisation?

      22nd April 2022

      Economics

      Explained – The U.S. Federal Reserve to increase…

      8th February 2022

      Economics

      All you need to know about the Natural…

      24th January 2022

      Economics

      The Truth about “Tax the Rich”

      27th December 2021

      Economics

      Venezuela Crisis

      2nd October 2021

      Environment

      World Air Quality Report 

      28th March 2022

      Environment

      Why should we be worried about topsoil erosion?

      21st March 2022

      Environment

      Effects of Climate Change

      30th July 2021

      Environment

      Implications of a Tragic Love Story – Coral…

      4th June 2021

      Global Reports/Agreements

      IPCC Report 2022

      8th March 2022

      Global Reports/Agreements

      The Climate Change Negotiations – UNFCCC and Paris…

      3rd August 2021

      Global Reports/Agreements

      Understanding World Happiness Report

      15th April 2021

      In pictures

      World War 2 Summary (1939 to 1945)

      9th July 2020

      In pictures

      World War I – 1914-1918

      30th June 2020

      Intl. Organisations

      What is the Wassenaar Arrangement?

      5th January 2023

      Intl. Organisations

      International Energy Agency (IEA)

      15th April 2022

      Intl. Organisations

      Food and Agriculture Organization (FAO)

      12th April 2022

      Intl. Organisations

      United Nations Human Rights Council (UNHRC)

      10th April 2022

      Intl. Organisations

      What is the G20 Summit?

      31st October 2021

      Intl. Organisations

      What is QUAD? | Quadrilateral Security Dialogue

      10th October 2021

      Intl. Organisations

      SCO – What is Shanghai Cooperation Organisation?

      28th September 2021

      Intl. Organisations

      G7 GROUP

      24th September 2021

      Personalities

      Gramsci Prison Notebooks

      18th November 2021

      Personalities

      John Stuart Mill: Theories

      10th September 2021

      Personalities

      Understanding Rousseau, Jean-Jacques

      4th July 2021

      Personalities

      John Locke – Father of Liberalism

      14th June 2021

      Personalities

      Hobbes Leviathan – Political Philosophy of Hobbes

      22nd May 2021

      Personalities

      Chanakya Strategies in administration

      30th March 2021

      Personalities

      Who was Machiavelli? – The Prince Summary and…

      3rd March 2021

      Personalities

      Aristotle – A Greek Philosopher

      25th January 2021

      Politics

      What is China’s ‘Wolf Warrior’ Diplomacy?

      21st October 2022

      Politics

      Latest on Tunisia and Arab Spring

      18th August 2022

      Politics

      Dispute between Armenia and Azerbaijan – The past…

      27th May 2022

      Politics

      Sudan’s Nightmare: The Conflict Explained

      9th January 2022

      Politics

      What’s happening between Ukraine and Russia?

      12th December 2021

      Politics

      China Taiwan Conflict

      7th October 2021

      Politics

      Taliban taking over Afghanistan

      18th August 2021

      Politics

      Armenian Genocide – What Happened?

      24th April 2021

      Science & Tech

      What are VPNs, and why are they in…

      29th July 2022

      Science & Tech

      Does Splinternet mean the end of the Internet?

      6th April 2022

      Science & Tech

      What you must know about the world’s first…

      2nd January 2022

      Science & Tech

      Omicron: Everything you need to know about COVID-19…

      5th December 2021

      Science & Tech

      Dopamine Happy Hormone

      14th August 2021

      Science & Tech

      How to avoid trans fat?

      7th August 2021

      Science & Tech

      Mental Health during the COVID19 pandemic 

      27th June 2021

      Science & Tech

      CRISPR Nobel Prize 2020 – What is it…

      27th December 2020

      Theory / Facts

      What is Fascism?

      21st July 2021

      Theory / Facts

      Banality of Evil

      14th July 2021

      Theory / Facts

      Evolution of Western Political Thought

      19th December 2020

      Theory / Facts

      What is Game Theory in Politics?

      10th December 2020

      Theory / Facts

      Demarcation of Powers and Responsibilities

      13th September 2019

      Theory / Facts

      Realist vs Idealist

      2nd September 2019

      World

      The Truth about Chernobyl Nuclear Disaster

      28th February 2022

      World

      Djokovic Visa Controversy – More Than What Meets…

      17th January 2022

      World

      Happiest Countries in the World – Top 10

      5th April 2021

      World

      5 Women making history in 2021 – Women…

      21st March 2021

      World

      Five demonstrations that changed history

      5th February 2021

      World

      Myanmar Story

      2nd February 2021

      World

      India and Global Nuclear Order

      31st January 2021

      World

      Nuclear Proliferation

      30th January 2021

      World History

      Israel Palestine Conflict

      11th May 2021

      World History

      What is Cold War? – Cold War Summary

      11th February 2021

      World History

      Russian Revolution

      10th January 2021

      World History

      The Soviet Union Collapse and End of Cold…

      30th December 2020

      World History

      French Revolution – What happened?

      3rd December 2020

      World History

      American Revolution Summary

      28th November 2020

      World History

      South Korea vs North Korea

      12th September 2020

      World History

      World War 2 Summary (1939 to 1945)

      9th July 2020

      Topics

      What is the Wassenaar Arrangement?

      5th January 2023

      Topics

      What is China’s ‘Wolf Warrior’ Diplomacy?

      21st October 2022

      Topics

      Latest on Tunisia and Arab Spring

      18th August 2022

      Topics

      What are VPNs, and why are they in…

      29th July 2022

      Topics

      Few terms coming up in focus to understand…

      29th July 2022

      Topics

      Dispute between Armenia and Azerbaijan – The past…

      27th May 2022

      Topics

      Why are special drawing rights (SDR) in the…

      23rd May 2022

      Topics

      The world faces a growing stagflationary storm

      5th May 2022

  • NewsFeed
  • Miscellaneous
  • Videos
  • Archives