Stagflation - what is it? Signs and characteristics of stagflation

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:46

So, let's consider the concept of "stagflation". What it is? This is the name of the state of the economy, when the fall and stagnation of production are accompanied by increasing unemployment and a constant rise in prices - inflation. That is, this term defines inflationary processes against the backdrop of economic stagnation. In other words, stagflation is a sluggish form of economic crisis. The main reasons for this process are anti-crisis measures carried out by the state, and the policy of monopolies, thanks to which prices remain high during crises.

This term is often used today in modern macroeconomics. This new phenomenon appeared not so long ago as a result of the cyclical development of the national economy and the formation of new types of capital reproduction.

Term Definition

The concept of stagflation first became known in 1965, in the UK. Until that time, an economic downturn was necessarily accompanied by a decrease in prices, but, starting from 1960, the opposite process was observed in different countries, whichcalled stagflation. What is it and what are the causes of such processes, many scientists explain in different ways. Possible reasons include the following:

Energy crises.
The high cost of goods monopolies in the crisis period.
Government measures taken to improve the economic condition of the country.
General globalization of the economy and the abolition of protectionism.

Examples of stagflation

In 1960-1980, stagflation was observed in many developed countries of the West. Many examples can be cited, but the most memorable for Russia was the example of 1991-1996. It was during this period that the country experienced high inflation rates and an inexorable decline in GDP. An example is the economic collapse in the United States in 1970. At that time, the inflation rate in this country was 5.5-6%, which, in principle, indicated stagflation.

Signs of stagflation

The stagflation of the economic system can be judged by the following signs: the growth of unemployment, the depressed state of the economy, inflationary processes in the country and the devaluation of the national currency in the international market. This is a new form of crisis in the economy, in which the population has no free funds, purchasing power is low, but prices are steadily growing.

Stagflation is characterized by all these signs, and all of them are perfectly superimposed on the economic situation in Russia - the ruble exchange rate is declining, the levelemployment is also at a low level, there is a general decline in the economy. It is for this reason that economists talk about the likelihood of stagflation in Russia. True, analysts believe that such processes are now present in the economies of many fully developed countries, but this can hardly be a consolation. Such a phenomenon as stagflation, what it is, more precisely, has not yet been fully studied by economists. It is believed that such a state of the economy tends to disappear as rapidly as it arises. But analysts agree on one thing: stagflation entails only negative consequences.

What are the consequences of stagflation

Stagflation, as already mentioned, is characterized by a negative impact on the economy. Its consequences are a decline in the development of the economy and the emergence of acute crisis phenomena, such as a decrease in the level of welfare of citizens, unemployment, social vulnerability of certain segments of the population, a decline in GDP and a decline in the financial and credit system.

Phillips curve

As the simplest Keynesian model shows, either inflation or unemployment can occur in the economy. These two processes cannot occur simultaneously, but, based on empirical studies conducted in the 1950s and 1960s, economists confirmed that such a relationship exists. Stagflation and the Phillips curve mark a stable and predictable inverse relationship between inflation and unemployment rates.

The relationship between these two indicators is inversely proportional, so we can assume that there is alternative relationship between them. If the Phillips curve is fixed in one position, then the people who determine the economic situation will have to decide what is better to use to improve the situation - stimulating or restrictive fiscal policy.

How to avoid stagflation

Traditionally, to stabilize the situation in the economy, measures were taken that were limited only to the redistribution of general demand, which, in fact, had no effect on the disproportions of the labor market and the system of dominance in the market. In this case, the inflation rate began to rise before it was possible to achieve a state of full employment. For example, manipulation of aggregate demand through the use of monetary and fiscal measures only led to the movement of the economy along a given Phillips curve.

Will there be stagflation in Russia

Due to the sharp devaluation of the ruble, the expert community is increasingly making gloomy forecasts. Experts say that such a drop was not even during the global financial crisis. Hence the assumption that Russia is threatened by stagflation. What it is and how it can turn out for the country's economy, we have already sorted it out. This will not turn out to be good for the economic situation in Russia, since stagflation combines the simultaneous decline of the economy and the growth of inflation.

Analyst opinion

Will there be stagflation in Russia? What is it, will the Russians know? Or is it another assumption on the topic of domesticeconomics, not confirmed by anything and not substantiated in any way? So, if we believe the statements of economists from the HSE Development Center, then in the near future Russia will face this unpleasant problem. Analysts explain their disappointing forecasts as follows. As you know, stagflation is a multilateral process in which one of the parties determines the decline in production activity.

Are there signs of such a fall? If we recall the results of last year, then Russia closed it with an economic growth rate of 1.3%. At the last meeting of the Economic Council, Russian President Vladimir Putin noted the fact that few countries in the world show such GDP growth rates. And for some, there is even a drop in this indicator. For comparison, we can cite changes in GDP in Italy: there it fell by 1.9%, while in France it grew by only 0.2%. Therefore, we can conclude that the experts' forecasts are unfounded, and the Russian economy is not as bad as they try to show. But at the same time, one should not forget that in the previous year, 2012, Russian economic growth reached 3.4%.

The other side of stagflation speaks of the rapid rise in prices in the country. And in fact, according to statistics, consumer prices in Russia have increased by 6.5% over the past year. For comparison: in the EU countries they rose by only 1%. In particular, a strong increase in prices is noted for the food group of goods - by 6.2%. If we again compare this indicator with the data for the European Union, then there they grew by only 1.4%.

How indicators have changed in 2014

Food prices continued to rise this year as well. According to experts, their growth will become much more noticeable, especially if the price of vegetables, fruits, dairy and fish products, alcoholic beverages and services to the population rises. According to such gloomy forecasts, it is likely that inflation in the country by the end of the year may rise to 6%, that is, it will be 1.5% higher than the indicator set by the Central Bank.

Most likely, the ruble will gradually weaken for a long time. This is due to many factors such as a reduction in imports, stagnation in the manufacturing industry, lack of currency in the country. In addition, geopolitical instability was added. The HSE notes that in order to change this situation, it is necessary to ensure a deeper devaluation of the national currency.

It is worth paying attention to another important aspect of stagflation, namely the unemployment rate in the country. More recently, the government was proud to say that Russia's unemployment rate was the lowest in the last ten years. And it really is. In 2013, the unemployment rate in the country was about 5.5%. But the economy in Russia is slowing down, therefore, it is quite expected that there will be more unemployed. According to forecasts, by the end of 2014 the unemployment rate may be more than 6%. Nevertheless, a rapid increase in this indicator is not yet expected.