What is stagflation in the economy? Under this term, within the framework of a macroeconomic system, information processes in the form of economic stagnation are understood. Stagflation combines the features of destructive processes and is, in fact, a sluggish form of any economic crisis. And this despite the fact that inflation in moderate amounts is a certain stimulant in the economic activity of entities, and in critical sizes - the cause of the collapse of entire states.
Stagflation History
The term itself originally appeared in the UK when stagflation processes were first noted. Prior to this, the cyclical development of the economy was characterized by lower prices during a decline in production and economic depression. Around the end of the 60s of the XX century, a slightly different (opposite) picture began to emerge, which became known as stagflation. Brightly enough, it found its definition in the United States during a period of decline in production, when the
rate of price
growth due to rising inflation amounted to about 1%. The economy fluctuates cyclically, its changes occur between stagnation, characterized by falling prices, high unemployment and low economic growth, and inflation, which is accompanied by completely opposite processes.
Summing up, we can say that stagflation means processes that are characterized by rising prices and high unemployment with a simultaneous lack of economic growth.
The main signs of stagflation
So, what is stagflation and what factors indicate its onset? This is, firstly, the state of the economy, which can be defined as depressive. Secondly, the rapid increase in unemployment. Thirdly, rapid inflationary processes in the state, as well as currency devaluation in the international market.
What is stagflation, it became known back in the 70s of the twentieth century. During this period,
depressions in the economy were accompanied by a certain decrease in prices (this process is called “deflation”). It is safe to say that the concept of “stagflation” has appeared quite recently, the definition of which can be formulated as follows. This is a completely new type of crisis in the economy, accompanied by a lack of cash among the population and low purchasing power. But at the same time prices are skyrocketing.
These signs are very closely related to the Russian economy of the 21st century: the depreciation of the national currency (ruble), a decrease in employment in the presence of a general economic downturn. Based on these factors, economists conclude that there is a danger of stagflation in the Russian Federation. However, international analysts believe that stagflation is known to almost all countries with developing economies.
Causes of stagflation
Among the reasons that can cause stagflation, scientists distinguish the following:
- high monopolization in the economy (monopolists can maintain prices artificially in an unfavorable situation, entrepreneurs often in conditions of pure competition are forced to lower prices in a depressed economy);
- various anti-crisis measures that are being implemented by the state in the form of public procurement, artificially increasing demand, as well as regulating certain prices in order to ensure the protection of the Russian manufacturer;
- globalization in the economy (as an example, we can cite a hypothesis explaining the increase in inflation with unemployment in the global economy in the 20th century, since the entry of certain states into the world community can often cause shocks in the Russian economy);
- the presence of inflationary expectations among manufacturers;
- crises of an energy nature.
Thus, it can be seen that prominent economists and scientists have not figured out this economic phenomenon to the end.
Wavy phenomena in stagflation
This phenomenon is characterized by a tendency of both rapid emergence and rapid disappearance. The only point in which all experts adhere to one point of view is that stagflation has only negative consequences.
Stagflation and its consequences
As already indicated, this economic phenomenon is characterized mainly by the negative impact on the economic activities of entities.
It can stop any economic development, is also capable of provoking the emergence of acute crisis phenomena in the economic life of society. The main consequences are considered:
- decline in the welfare of citizens;
- the presence of a crisis in the labor market;
- social insecurity for some categories: people with disabilities, civil servants and pensioners;
- decrease in the positive results of the functioning of the financial and credit system;
- decrease in the level of GDP.