DR YASAM AYAVEFE – BACK TO 1970s? This is a sponsored advertising post. Nothing in this content should be construed as advice, it is meant for informational purposes only.

I am talking about the debate on so-called stagflation, a toxic combination of slow economic growth and rising unemployment and accelerating inflation. It was supposedly the year the global economy recovered from the COVID-19 shock. Stagflation is a term I didn’t expect to find after reading about it in the college entrance exams a decade ago. The term was easy to internalize because it was memorable in all its strangeness and oddity in relation to conventional inflation.

Over the past six months, however, a surprising number of economic experts have glanced at the possibility of stagflation, and since the outbreak of the war in Ukraine, the industry itself has wondered whether the realization of stagflation could be a truly realistic possibility in today’s world.

The word “stagflation” itself comes from a combination of the English words “stagnation” and “inflation,” the former meaning roughly stagnation or withering away.

Stagflation arises almost invariably from single or multiple one-off shocks that hit the economy at the same time or separately. And these different shocks have already been seen in the early 2020s, first came Covid-19, which was soon followed by the War in Ukraine.


The question of whether we are drifting into stagflation is absolutely crucial for monetary policy today. Putin’s brutal, bloody war in Ukraine has only accelerated already rapid inflation, especially energy inflation. But it is difficult for monetary policy to be influenced by monetary policy instruments.Yes, a rapidly tightening monetary policy could lead to a recession.

A point of reference for stagflation has been compared with the 1970s. The 1973 crisis was triggered when Arab countries acted to quadruple the price of oil and imposed an embargo in protest at the West’s support for Israel during the Yom Kippur War.

It led to the regulation of energy use and the economic downturn. Another energy crisis followed in the late 1970s with the Iranian revolution.

Yet there are many reasons why 2022 is not a 1974 version of this world.

First, the economy of many countries is now much stronger than it was in the 1970s. Also, the structure of production in developing countries has changed: according to researchers at Columbia University, the same amount of goods and services can now be produced with more than half the amount of oil than in the early 1970s. This is also shown by the fact that, despite the increase in the size of motor vehicles, they now consume about 40% less fuel than in the 1970s.

My conclusion is that there is no classic stagflation going to the bones and cores like the ’70s, going on right now. On the other hand, we are experiencing price increases that are emanating from global oil markets. It is not known that how long the oil price increases resulting from the Russian invasion of Ukraine will last.  However, the oil shocks of the inflation far outstrip anything that we have experienced to date. There are developments which refers to stagflation, and the risk of an intensification of stagflation must be taken seriously.

Google search : “Stagflation”

The picture above describes the trend of typing and searching the word stagflation over the last twelve months. This also illustrates well the direction in which the economic debate is heading.

The future direction of the economy

The risk and likelihood of stagflation is higher now than ever. However, it is still theoretical, as both European and US central banks are likely to do their utmost to avoid stagflation.

Stagflation would momentarily give birth to the worst economic conditions in the West for many decades, often leading to social insecurity as well.

The problem with managing stagflation, however, is that it is far more challenging than burning inflation alone – what happens if you raise interest rates even as the economy goes down?

The theory is that, rising interest rates will reduce taking loans and slow down the economy, but if the interest rates keep going up in already a bad economic environment, the situation will only go worse. So there is no easy way out of stagflation, not even for central banks.

While stagflation can happen more and more often in the near future, if the war in Ukraine expands, I think long-term stagflation is even closer to zero.

We can achieve the concept and the length of stagflation for a month or two, but I do not yet believe in a multi-year stagflationary spiral..

Fitch Solution’s research analysis shows that Germany, Italy and Japan are the markets most at risk of stagflation among peers in 2022, while France and Canada are the least at risk. The US, Australia, Spain and the UK are at medium risk. Fitch Solutions fuels better informed credit risk and strategy decisions with reliable data, insightful research and powerful analytics across global markets and macroeconomic environments

Fingers crossed.


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