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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    When inflation meets economic stagnation

    Rocky
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    • Post n°1

    When inflation meets economic stagnation Empty When inflation meets economic stagnation

    Post by Rocky Mon 13 Jun 2022, 5:54 am

    When inflation meets economic stagnation

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    Dr.. Abdullah Al-Radadi, a Saudi researcher specializing in financial management
    The media circulated the term (stagflation), which means stagflation, a term coined to be synonymous with double price increases, job losses, and images of cars queuing at gas stations. While the term refers to a sharp increase in prices with job losses, economists have used the term more broadly to refer to a period in which inflation remains above central banks' target, with negative effects on economic growth.
    The World Bank gave a dark picture of the global economy in the coming period in its report issued last week, and the Bank expected that global growth would decline to 2.9% in 2022, after it reached 5.7% in 2021, and the level of per capita income in developing economies is expected to decrease this year. by 5%. In advanced economies, growth is expected to slow from 5.1% to 2.6%, while in developing and emerging economies, growth may decline from 6.6% to 3.4%, which is much lower than the average of the past decade, which reached 4.8%. The World Bank expected that inflation will decrease next year, but it will remain higher than the inflation targets in many countries, and the continuation of inflation may lead to a contraction of the global economy. High rates of inflation harm the economy because it puts pressure on the budgets of individuals and families, which makes them reduce consumer spending, which weakens economic activity and slows down the growth of companies (if they grow), as well as the decline in their profits.
    This is the sharpest inflation in four decades, which made many compare it to the recession that occurred in the United States in the seventies of the last century, when unemployment rates doubled in the United States and Europe, and inflation then reached 14%. This situation is similar to the seventies in three main aspects: The first is the continuous disturbances on the supply side, which clearly fuels inflation. This shortage has been represented in a number of forms, including the pandemic and how it has affected global supply chains, the closest example being the lack of electronic chips. The energy supply was also disrupted by the Russian-Ukrainian war. Perhaps what made many associate this time with the seventies is the lack of oil supplies at that time due to the embargo of a number of Arab countries for oil. This turmoil is similar to what the Russian-Ukrainian war caused a shock to global energy markets. The second reason for the analogy with the seventies is the accommodative monetary policy that followed the pandemic to revitalize advanced economies, so many countries facilitated loans by reducing interest rates to revitalize the economy after the pandemic, and this contributed to increasing inflation. The third is the fragility of some emerging markets, which were greatly affected by the tightening of monetary policy and raising interest rates.
    The reason for optimism is that the central banks have benefited from the lessons of the seventies, as they now have a clear target for inflation, unlike the seventies, and are seeking to reach these targets through their monetary policies. In addition, governments have become more able to contribute to reducing unemployment rates by creating investments to provide jobs. Governments are ready to struggle so as not to reach the situation in the seventies, when many countries entered into cycles for many years, some of which have not yet been able to get out of it.
    Reducing inflation pressures may lie in two main solutions: The first is to solve supply chain obstacles, which reduces costs on products, food and fuel and makes them more abundant, and therefore less expensive. The solution to these obstacles does not appear on the horizon yet. China is still suffering from the outbreak of the Corona virus, and the shortage of manpower continues to pose a challenge to ports and warehouses. Therefore, the central banks resorted to the other solution, which is raising the interest rate to reduce demand from companies and consumers. So far, the Federal Reserve has raised the target interest rate twice, and announced it will raise it for a third time a few days ago, and it is not unlikely that it will raise it twice more by the end of this year. Although it is a proven solution to control the price of inflation, raising the interest rate in this way may cause the elimination of growth and lead to stagnation, a dilemma that may be difficult for some governments to solve.
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