Stagflation In The World
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Stagflation in the world is a threat to the global economy, that may create an awful environment for stocks and investment market. Stagflation in the world will suppress the economic growth and raise inflation.
A return of stagflation in the world will propel the central banks to raise the interest rates again and again to combat it. A sluggish growth and high inflation made a good part of the 1970s such a bad time for investors. In an annual report, published recently, the Bank for the world’s central banks and the Bank for International Settlements warns that stagflation in the world is a real possibility.
A discussion: Global Stagflation
According to Keynesian economic theory, fast growth in demand can prevent supply from sustaining with demand. That eventually raises the prices for goods and services and higher prices drive workers to demand higher wages, which successively produces higher prices.
Central banks from the Federal Reserve to the European Central Bank present reasons that low-priced overseas goods substituted high priced domestic products, which eventually bringing down the prices. The low-priced overseas producers impel domestic producers to lower prices, which will lower inflation. The overseas producers like China and India propels other overseas countries to compete with themselves and eventually lower the prices. Interest rates dropped in Japan and United States that promoted the global money supply and an increase in money supply could induce inflation.
The Bank for International Settlements present reasons that the global economy has progressed vital inflationary impulse and the global central banks kept the money supply growing rapidly for a longer period and eventually the world is heading towards a sluggish growth and high inflation, which is Stagflation.
Stagflation: Reasons
The two most acceptable factors responsible for the occurrence of stagflation in the world are:
- Oversupply
- Global instability
The global property market is not showing a satisfactory performance and the interest rates are also raising. High interest rates, high inflation and low consumer spending is clearly threatening stagflation in the world. The national banks are pressured to raise interest rates to combat the situation.
Present Status : Stagflation in the World
US spending and personal income slowing down and the Japan underwent the largest rise in inflation. The overall world economy is stagnating. The core price inflation of United States has increased. The global unemployment rate is going down while the under-employment rate is increasing, which is a clear sign of stagflation.
The US economy is getting through a stagflation driven environment, where the price of gold is at a 17 year high and unemployment is recorded at 2 year high.
