MoneyGeek: Stagflation in Economics: History, Causes & Characteristics

July 31, 2022 | Nathan Paulus, MoneyGeek

Robert S. Bacarella, Monetta’s founder, president, and portfolio manager, shared his thoughts with Nathan Paulus for a new piece on stagflation, the term for persistent high inflation combined with high unemployment and stagnant demand in a country’s economy. The piece, titled “Stagflation in Economics: History, Causes & Characteristics,” gives an in-depth explanation of stagflation, the factors that cause it, and the economic impact on the average consumer.

Bacarella, a MoneyGeek expert contributer, explains how to spot the difference between stagflation and recession, a period of temporary economic decline during which trade and industrial activity are reduced:

“The core issue between stagflation and recessions is raising prices primarily due to imbalances in the supply and demand for products. The extent to which policies are implemented to lower prices will impact the length of the stagflation period and/or the possibility of propelling the economy into a recession.

Today’s inflation* is primarily a result of U.S. supply chain disruptions and the Russian/Ukraine war that has impacted the supply of oil, gas and commodities. In addition, the low unemployment rate has required companies to pay higher wages to attract employees, which companies have passed on to customers by raising the price of their products and services.”

Bacarella notes that there are a few ways to potentially spot the end of stagflation:

“Consumer purchasing power** typically declines during a high inflationary, stagnating economy which will likely affect your spending patterns, job security and ability to pay bills.”

Follow this link to learn more, including how central banks have been dealing with stagflation in recent years: Read more at MoneyGeek

*Inflation: a general increase in prices and fall in the purchasing value of money

**Purchasing Power: the financial ability to buy products and services