Big in the ’70s and ’80s, talk of stagflation has reared its head again. What is it, and are we heading for a new era of it? | Explainer by clancyyeates inflation Stagflation
” The term indeed caught on more widely in the 1970s, when high inflation and unemployment brought to an end an economic era dubbed the “Golden Age”.Ian Macfarlane, former Reserve Bank governor
But the 1970s showed it was possible to have high inflation and unemployment at the same time – things cost more at a time when jobs were thin on the ground.saying unemployment more than doubled in about 18 months to 5.3 per cent in December 1975 when inflation had hit 14.4 per cent. “This was a situation that had never been experienced before, so a new word had to be invented. The word was stagflation,” Macfarlane said.
Another former RBA governor, Glenn Stevens, has previously recalled that people in the 1980s used to also talk about the “half-life of a dollar” .Stagflation is bad news. In fact, UNSW economics professor Richard Holden says it would be an “almost armageddon” scenario for the Australian economy. Aside from putting people out of work, stagflation can deter businesses from investing because quickly rising prices can make it harder to predict cash flows, and to get finance from a bank.
In the first half of 2022, central banks once again started raising interest rates, and it’s clear there will be more rate rises to come. Some traders fear these rate rises will spark a global recession.“If, all of a sudden, we had 7 per cent unemployment, 12 per cent inflation and zero GDP growth, it would be a real question of what to do about it,” Holden says. But as it stands, we are a long way from that: latest figures show we have 3.9 per cent unemployment, 5.1 per cent inflation and 3.
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