By now you may have heard of the possibility of the dreaded “S” word taking over the markets and economies. Yes, that word is “stagflation”. It is a portmanteau of two words “stagnant” and “inflation”.
What is stagflation? Putting it simplistically, it is a situation where we have high inflation, high unemployment and a slow or stagnant economic growth. As you can see, it is a very difficult cycle to escape from once it rears its ugly head: high inflation leads to workers demanding higher wages, but with slow demand, companies find it difficult to do just that without hurting the bottom line. Worse still, companies may lay off workers so that they could keep themselves afloat, let alone giving in to raising pay.
The most famous (and only) real life case of stagflation occurred during the 1970s in the United States, where a combination of factors such as high inflation and unemployment,...