What is stagflation? Let's turn to economic processes

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:48

What is "stagflation" in the economy? This term within the framework of the macroeconomic system refers to information processes in the form of economic stagnation. Stagflation combines the features of destructive processes and is, in fact, a sluggish form of any economic crisis. And this despite the fact that moderate inflation is a certain stimulus in the economic activity of subjects, and critical levels cause the collapse of entire states.

History of stagflation

The term itself originally appeared in the UK, when stagflationary processes were first noted. Prior to this, the cyclical nature of the development of the economy was characterized by a decrease in prices with a decline in production and economic depression. Approximately at the end of the 60s of the XX century, a somewhat different (opposite) picture began to emerge clearly, which becameknown as stagflation. Quite clearly, it found its definition in the United States during the period of a decline in production, when the rate of price growth due to rising inflation amounted to about 1%. The economy fluctuates cyclically, its changes occur between stagnation, characterized by falling prices, high unemployment and low economic growth, and inflation, which is accompanied by completely opposite processes.

Summing up what has been said, we can say that stagflation means processes that are characterized by rising prices and high unemployment, while there is no economic growth.

Main signs of stagflation

So, what is stagflation and what factors indicate its onset? This is, firstly, the state of the economy, which can be defined as depressive. Secondly, the rapid growth of unemployment. Thirdly, the rapid inflationary processes in the state, as well as the devaluation of the currency in the international market.

What is stagflation, it became known back in the 70s of the twentieth century. During this period, depressions in the economy were accompanied by a certain decrease in prices (such a process is called “deflation”). It is safe to say that the concept of "stagflation" has appeared quite recently, the definition of which can be formulated as follows. This is a completely new kind of crisis in the economy, accompanied by a lack of funds from the population and low purchasing power. But at the same time, prices are skyrocketing.

Specifiedsigns are very closely related to the Russian economy of the 21st century: the depreciation of the national currency (ruble), the decline in employment in the presence of a general economic downturn. Based on these factors, economists draw conclusions about the danger of stagflation in the Russian Federation. However, international analysts believe that almost all countries with developing economies know what stagflation is.

Causes of stagflation

Among the reasons that can cause stagflation, scientists distinguish the following:

- high monopolization in the economy (monopolists can artificially maintain prices in unfavorable conditions, entrepreneurs are often forced to reduce prices in a depressed economy in conditions of pure competition);

- various anti-crisis measures that are implemented by the state in the form of public procurement, artificially increasing demand, as well as regulating certain prices in order to protect the Russian manufacturer;

- globalization in the economy (as an example, we can cite a hypothesis that explains the increase in inflation with unemployment in the world economy in the 20th century, since the entry of certain states into the world community can often cause shocks in the Russian economy);

- presence of inflation expectations among manufacturers;

- energy crises.

Thus, it can be seen that outstanding economists and scientists have not fully understood this economic phenomenon yet.

Wave-like phenomena in stagflation

This phenomenon has a tendency to both rapid emergence and rapid disappearance. The only point at which all experts adhere to the same point of view is that stagflation has only negative consequences.

Stagflation and its consequences

As already mentioned, this economic phenomenon is characterized mainly by a negative impact on the economic activities of entities.

It can stop any economic development, it is also capable of provoking acute crises in the economic life of society. The main consequences are considered to be:

- decrease in the welfare of citizens;

- the presence of a crisis in the labor market;

- social insecurity for some categories: disabled people, civil servants and pensioners;

- decrease in the positive results of the functioning of the financial and credit system;

- decline in GDP.