Stagflation 2007

By: EconomyWatch   Date: 14 October 2010

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Stagflation 2007 is emerging out as a global phenomenon that may result in a displeasing condition for world stocks and investment market. Stagflation 2007 can pull down the economic growth and raise the rate of inflation.
Stagflation
Stagflation can be defined as a condition that occurs during a period of uncontrollable price inflation combined with slow output growth. Stagflation promotes unemployment. The term stagflation comes out from the combination of words stagnation and inflation. In the event of stagflation, the central bank slows down growth to lower the inflationary pressures or let the price to rise for inducing growth. In stagflation 1970, the energy prices kept rising because of absolute declines in oil production.

Present world economy: Stagflation2007
In the second half of 2006, the U.S. economy growth rate decelerated to approximately 2 percent, although in the past three years U.S. experienced about 4% annual real GDP (Gross Domestic Product) growth. In 2007, the U.S. is showing a stable growth which is expected to accelerate in 2008.

The core consumer price inflation tends to be subsiding slightly from the high rates recorded last spring. The inflation is in stable condition, but the worrying factor is that the growth is decelerating. The sluggishness of growth can promote inflation reaching an uncomfortable position, which eventually brings U.S. into a recessionary phase.

The world oil price dropped, nonetheless, U.S. economy is growing by more than 2% and the monetary policy is also tightening up to combat inflation. The domestic investment in U.S. also declined. As compared to the past three years, growth is slower in 2007. After showing a steady growth in the last four years, the developing countries in the world are also very much aware about the falling growth rate.

The world labor market is tightening and underemployment is high. This is because of rising price, the world economy is weakening and tends to be into recession.
Stagflation: Impact on US Economy
Experts predict that in the coming months Federal Reserve may face stagflation because of weak domestic price and rising gold price.


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