What Is Stagflation?
Kanebridge News
    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,495,064 (-0.25%)       Melbourne $937,672 (-0.06%)       Brisbane $829,077 (+1.01%)       Adelaide $784,986 (+0.98%)       Perth $687,232 (+0.62%)       Hobart $742,247 (+0.62%)       Darwin $658,823 (-0.42%)       Canberra $913,571 (-1.30%)       National $951,937 (-0.08%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $713,690 (+0.15%)       Melbourne $474,891 (-0.09%)       Brisbane $455,596 (-0.07%)       Adelaide $373,446 (-0.09%)       Perth $378,534 (-0.83%)       Hobart $528,024 (-1.62%)       Darwin $340,851 (-0.88%)       Canberra $481,048 (+0.72%)       National $494,274 (-0.23%)   National $494,274                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 7,982 (-85)       Melbourne 11,651 (-298)       Brisbane 8,504 (-39)       Adelaide 2,544 (-39)       Perth 7,486 (-186)       Hobart 1,075 (-37)       Darwin 266 (+11)       Canberra 840 (-4)       National 40,348 (-677)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 7,376 (-100)       Melbourne 6,556 (-154)       Brisbane 1,783 (+12)       Adelaide 447 (+11)       Perth 2,139 (+3)       Hobart 173 (-1)       Darwin 393 (+1)       Canberra 540 (-29)       National 19,407 (-257)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $550 ($0)       Brisbane $650 ($0)       Adelaide $550 ($0)       Perth $595 ($0)       Hobart $550 ($0)       Darwin $720 (+$40)       Canberra $675 ($0)       National $639 (+$6)                    UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $550 ($0)       Brisbane $550 ($0)       Adelaide $430 ($0)       Perth $550 ($0)       Hobart $450 ($0)       Darwin $483 (-$38)       Canberra $550 ($0)       National $555 (-$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,759 (+74)       Melbourne 5,228 (-159)       Brisbane 2,940 (-7)       Adelaide 1,162 (-13)       Perth 1,879 (-7)       Hobart 468 (-15)       Darwin 81 (+6)       Canberra 707 (+10)       National 18,224 (-111)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 8,359 (+95)       Melbourne 5,185 (+60)       Brisbane 1,588 (-3)       Adelaide 335 (-30)       Perth 752 (+11)       Hobart 161 (-1)       Darwin 107 (-16)       Canberra 627 (-36)       National 17,114 (+80)   National 17,114                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.61% (↑)      Melbourne 3.05% (↑)      Brisbane 4.08% (↑)        Adelaide 3.64% (↓)       Perth 4.50% (↓)     Hobart 3.85% (↑)        Darwin 5.68% (↓)     Canberra 3.84% (↑)      National 3.49% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.46% (↑)      Melbourne 6.02% (↑)      Brisbane 6.28% (↑)        Adelaide 5.99% (↓)     Perth 7.56% (↑)        Hobart 4.43% (↓)       Darwin 7.36% (↓)     Canberra 5.95% (↑)        National 5.84% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 1.6% (↑)      Melbourne 1.8% (↑)      Brisbane 0.5% (↑)      Adelaide 0.5% (↑)      Perth 1.0% (↑)      Hobart 0.9% (↑)      Darwin 1.1% (↑)      Canberra 0.5% (↑)      National 1.2% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 2.3% (↑)      Melbourne 2.8% (↑)      Brisbane 1.2% (↑)      Adelaide 0.7% (↑)      Perth 1.3% (↑)      Hobart 1.4% (↑)      Darwin 1.3% (↑)      Canberra 1.3% (↑)      National 2.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 30.9 (↑)      Melbourne 32.6 (↑)      Brisbane 37.7 (↑)      Adelaide 28.7 (↑)      Perth 40.1 (↑)      Hobart 37.6 (↑)        Darwin 36.1 (↓)     Canberra 33.0 (↑)      National 34.6 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 32.5 (↑)      Melbourne 31.7 (↑)      Brisbane 35.2 (↑)      Adelaide 30.2 (↑)        Perth 42.8 (↓)     Hobart 36.9 (↑)        Darwin 39.6 (↓)     Canberra 36.7 (↑)      National 35.7 (↑)            
Share Button

What Is Stagflation?

Learn about the World Bank’s global economic outlook.

By HARRIET TORRY
Wed, Jun 15, 2022 10:27amGrey Clock 3 min

Stagflation—a toxic cocktail of stagnating growth and rising prices—is generally viewed as a relic of the 1970s. But economists are warning it could make a comeback.

What is stagflation?

The term is broadly defined as sluggish growth tied with rising inflation. Economists haven’t given it much thought since the 1970s, when U.S. consumers lined up to fill their cars with high-price gasoline and the jobless rate hit 9%.

Earlier this week, the World Bank sharply lowered its growth forecast for the global economy this year and warned of several years of high inflation and tepid growth reminiscent of the stagflation of the 1970s.

Stagflation spells trouble for the economy. Rising inflation erodes consumer purchasing power, and weaker demand hurts companies’ profits and causes layoffs.

Stagflation also puts the Federal Reserve in a bind because the central bank’s job is to keep both inflation and unemployment low. The Fed can raise interest rates to curb inflation—a path it has started on and intends to continue this year—but if it moves too aggressively it risks strangling spending and tipping the economy into a recession.

Why is stagflation a risk now?

Inflation is close to a 40-year high, and economists are worried about economic growth because of the war in Ukraine as well as lockdowns in China and supply-chain disruptions related to the Covid-19 pandemic.

Are we in a period of stagflation now?

Not necessarily. Inflation is high, but unemployment remains near a half-century low. The U.S. economy contracted in the first quarter as supply disruptions weighed on output, but most economists expect growth will resume in the second quarter because of strength in consumer and business spending. Stagflation would be a sustained period of both higher inflation and slower growth, not just one quarter.

Stagflation remains a risk to the U.S. economy, and there are similarities between the situation in the 1970s and today. Surging prices for oil and food are pushing up the cost of living, and business executives are voicing concerns about the outlook for the economy.

But the key difference between the situation in the 1970s and today is employment. During the 1970s and early 1980s, the unemployment rate at times was around 10%. It was just 3.6% in May 2022. U.S. layoff announcements, for now, are few and far between.

What is the difference between stagflation and inflation?

Inflation refers to an increase in prices for goods and services. The Fed likes to see a bit of inflation. It targets 2% inflation a year, because that signals healthy demand in the economy. But if inflation rises too quickly, the rapid price increases erode households’ purchasing power. Stagflation is a situation in which prices are rising, but demand is weakening and economic growth is slowing or contracting. As a result, businesses make less money and cut jobs, driving up unemployment. At worst, that pushes the economy into a recession.

Has stagflation happened before?

Yes, stagflation occurred from the early 1970s to the early 1980s, when surging commodity prices and double-digit inflation collided with high unemployment.

British Parliamentarian Iain Macleod is credited with first using the word stagflation in 1965. “We now have the worst of both worlds—not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of ‘stagflation’ situation.”

Its seeds were planted in the late 1960s, when President Lyndon B. Johnson revved up growth with spending on the Vietnam War and his Great Society programs. Fed Chairman William McChesney Martin, meanwhile, failed to tighten monetary policy sufficiently to rein in that growth.

In the early 1970s, President Richard Nixon, with the acquiescence of Fed Chairman Arthur Burns, tried to tame inflation by imposing controls on wage and price increases. The job became harder in 1973 after the Arab oil embargo drastically drove up energy prices, and overall inflation. Mr. Burns persistently underestimated inflation pressure: In part, he didn’t realize that the economy’s potential growth rate had fallen and that an influx of young, inexperienced baby boomers into the workforce had made it harder to get unemployment down to early-1960s levels.

As a result, even when the Fed raised rates, pushing the economy into a severe recession in 1974-75, inflation and unemployment didn’t fall back to the levels of the previous decade.

The stagflation of the 1970s ended painfully. Fed Chairman Paul Volcker drastically boosted interest rates to 20% in 1981, triggering a recession and double-digit unemployment.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 14, 2022.



MOST POPULAR

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

Related Stories
Money
Investments in Solar Power Eclipse Oil for First Time
By WILL HORNER 01/06/2023
Money
China’s Fading Recovery Reveals Deeper Economic Struggles
By STELLA YIFAN XIE 31/05/2023
Money
Germany Enters Recession in Blow to Europe’s Economy
By PAUL HANNON 30/05/2023
Investments in Solar Power Eclipse Oil for First Time

Government spending, including Biden’s Inflation Reduction Act, has helped drive a gap between clean-energy spending and fossil-fuel investments

By WILL HORNER
Thu, Jun 1, 2023 3 min

Investments in solar power are on course to overtake spending on oil production for the first time, the foremost example of a widening gap between renewable-energy funding and stagnating fossil-fuel industries, according to the head of the International Energy Agency.

More than $1 billion a day is expected to be invested in solar power this year, which is higher than total spending expected for new upstream oil projects, the IEA said in its annual World Energy Investment report.

Spending on so-called clean-energy projects—which includes renewable energy, electric vehicles, low-carbon hydrogen and battery storage, among other things—is rising at a “striking” rate and vastly outpacing spending on traditional fossil fuels, Fatih Birol, the IEA’s executive director said in an interview. The figures should raise hopes that worldwide efforts to keep global warming within manageable levels are heading in the right direction, he said.

Birol pointed to a “powerful alignment of major factors,” driving clean-energy spending higher, while spending on oil and other fossil fuels remains subdued. This includes mushrooming government spending aimed at driving adherence to global climate targets such as President Biden’s Inflation Reduction Act.

“A new clean global energy economy is emerging,” Birol told The Wall Street Journal. “There has been a substantial increase in a short period of time—I would consider this to be a dramatic shift.”

A total of $2.8 trillion will be invested in global energy supplies this year, of which $1.7 trillion, or more than 60% will go toward clean-energy projects. The figure marks a sharp increase from previous years and highlights the growing divergence between clean-energy spending and traditional fossil-fuel industries such as oil, gas and coal. For every $1 spent on fossil-fuel energy this year, $1.70 will be invested into clean-energy technologies compared with five years ago when the spending between the two was broadly equal, the IEA said.

While investments in clean energy have been strong, they haven’t been evenly split. Ninety percent of the growth in clean-energy spending occurs in the developed world and China, the IEA said. Developing nations have been slower to embrace renewable-energy sources, put off by the high upfront price tag of emerging technologies and a shortage of affordable financing. They are often financially unable to dole out large sums on subsidies and state backing, as the U.S., European Union and China have done.

The Covid-19 pandemic appears to have marked a turning point for global energy spending, the IEA’s data shows. The powerful economic rebound that followed the end of lockdown measures across most of the globe helped prompt the divergence between spending on clean energy and fossil fuels.

The energy crisis that followed Russia’s invasion of Ukraine last year has further driven the trend. Soaring oil and gas prices after the war began made emerging green-energy technologies comparatively more affordable. While clean-energy technologies have recently been hit by some inflation, their costs remain sharply below their historic levels. The war also heightened attention on energy security, with many Western nations, particularly in Europe, seeking to remove Russian fossil fuels from their economies altogether, often replacing them with renewables.

While clean-energy spending has boomed, spending on fossil fuels has been tepid. Despite earning record profits from soaring oil and gas prices, energy companies have shown a reluctance to invest in new fossil-fuel projects when demand for them appears to be approaching its zenith.

Energy forecasters are split on when demand for fossil fuels will peak, but most have set out a timeline within the first half of the century. The IEA has said peak fossil-fuel demand could come as soon as this decade. The Organization of the Petroleum Exporting Countries, a cartel of the world’s largest oil-producing nations, has said demand for crude oil could peak in developed nations in the mid-2020s, but that demand in the developing world will continue to grow until at least 2045.

Investments in clean energy and fossil fuels were largely neck-and-neck in the years leading up to the pandemic, but have diverged sharply since. While spending on fossil fuels has edged higher over the last three years, it remains lower than pre pandemic levels, the IEA said.

Only large state-owned national oil companies in the Middle East are expected to spend more on oil production this year than in 2022. Almost half of the extra spending will be absorbed by cost inflation, the IEA said. Last year marked the first one where oil-and-gas companies spent more on debt repayments, dividends and share buybacks than they did on capital expenditure.

The lack of spending on fossil fuels raises a question mark around rising prices. Oil markets are already tight and are expected to tighten further as demand grows following the pandemic, with seemingly few sources of new supply to compensate. Higher oil prices could further encourage the shift toward clean-energy sources.

“If there is not enough investment globally to reduce the oil demand growth and there is no investment at the same time [in] upstream oil we may see further volatility in global oil prices,” Birol said.

MOST POPULAR

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

0
    Your Cart
    Your cart is emptyReturn to Shop