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Stagflation without stagnation?
The economic concept most in vogue recently has been that of “stagflation”, a term describing mounting unemployment (STAG-nation) and surging prices (in-FLATION). The reference case is that of advanced economies in the 1970s, a period of huge monetary turbulence and oil shocks. This situation creates a dilemma. Is it better to boost income and employment at the risk of stoking inflationary tensions, or to counter the overheating at the risk of plunging the economy into recession? The experience of the 1970s suggests that there is no middle way (fine tuning) and that the only effective cure is to tighten monetary policy sharply. Is this the problem faced today? Here is some background: activity and global trade have rebounded faster than anyone expected after the Great Lockdown. The divergence between the V-shaped profile of demand and the U-shaped profile of supply has been accentuated by low inventories. This is resulting today in widespread shortages that are driving up prices and, in some cases, wages. It is also leading to a drop in unemployment and an acceleration in capital expenditure to create additional supply capacities. In short, inflation is clearly present, but not stagnation. The pace of economic growth is set to slow in 2022, either because the recovery loses momentum (in the US and Europe) or in a bid to curb over-indebtedness (China). In contrast, there is no clear evidence to claim that inflation rates will continue rising.
Table of forecasts
Sources: Consensus forecasts, MF, OECD, ODDO BHF Securities
Conflict of interests:
ODDO BHF CORPORATES & MARKETS, a division of ODDO BHF SCA, limited sharepartnership - Bank authorised by ACPR. ODDO BHF and/or one of its subsidiaries could be in a conflict of interest situation with one or several of the groups mentioned in this publication. Please refer to the conflict of interests section at the end of this document.
This is a non-contractual document, it is strictly for the private use of the recipient, and the information it contains is based on sources we believe to be reliable, but whose accuracy and completeness cannot be guaranteed. The opinions given in the document reflect our appraisal at the time of publication and may therefore be revised at a later date.
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