So, consider the concept of stagflation. What it is? This is the name of the state of the economy when the decline and stagnation of production is accompanied by increasing unemployment and a constant rise in prices - inflation. That is, this term defines inflationary processes amid economic stagnation. In other words, stagflation is called a sluggish form of economic crisis. The main reasons for this process are the anti-crisis measures undertaken by the state and the monopoly policy, due to which a high level of prices during crises is maintained.
This term is often used today in modern macroeconomics. This new phenomenon appeared not so long ago as a result of the cyclical development of the national economy and the formation of new types of capital reproduction.
Definition of the term
The concept of stagflation first became known in 1965, in the UK. Until this time, the economic downturn was necessarily accompanied by lower prices, but since 1960, the opposite process has been observed in different countries, which was called stagflation. What it is and what are the causes of such processes, many scientists explain in different ways. Possible causes include the following:
- Energy crises.
- The high cost of goods monopolies in a crisis period.
- State measures taken to improve the economic condition of the country.
- The general globalization of the economy and the abolition of protectionism.
Stagflation examples
In 1960-1980, stagflation was observed in many developed countries of the West. Many examples can be given, but the example of 1991-1996 became the most memorable for Russia. It was during this period that the country experienced high inflation and an inexorable decline in GDP. An example is the economic decline in the United States in 1970. At that time, the inflation rate in this country was 5.5-6%, which, in principle, indicated stagflation.
Signs of stagflation
The stagflation of the economic system can be judged by the following signs: the growth of unemployment, the depressed state of the economy, inflationary processes in the country and the devaluation of the national currency in the international market. This is a new form of crisis in the economy in which the population does not have free funds, purchasing power is low, but prices are steadily rising.
Stagflation is characterized by all these signs, and all of them are superimposed on the economic situation in Russia - the ruble exchange rate is declining, the employment rate is also at a low level, there is a general economic decline. It is for this reason that economists talk about the likelihood of stagflation in Russia. True, analysts believe that such processes are now present in the economies of many quite developed countries, but this can hardly be a consolation. Such a phenomenon as stagflation, what it is, more precisely, has not yet been fully studied by economists. It is believed that this state of the economy tends to disappear as rapidly as it does. But analysts agree on one thing: stagflation entails only negative consequences.
What are the effects of stagflation
Stagflation, as already mentioned, is characterized by a negative impact on the economy. Its consequences are a decline in economic development and the emergence of acute crisis phenomena, such as a decrease in the level of citizens' provision, unemployment, social insecurity of certain segments of the population, a decrease in GDP, and a decline in the financial and credit system.
Phillips Curve
As the simple Keynesian model shows, either inflation or unemployment can occur in an economy. At the same time, these two processes cannot occur, but, based on empirical studies conducted in the 50-60s, economists have confirmed that such a relationship exists. Stagflation and the Phillips curve indicate a stable and predictable inverse relationship between inflation and unemployment.
The relationship between these two indicators is inversely proportional, so we can assume that there is an alternative relationship between them. If the Phillips curve is fixed in one position, then people who determine the economic situation will have to decide whether it is better to use stimulating or restrictive fiscal policies to improve the situation.
How to avoid stagflation
Traditionally, to stabilize the situation in the economy, measures were applied that were limited only by the redistribution of total demand, which, in fact, did not affect the imbalances in the labor market and the market dominance system. In this case, the inflation rate began to rise earlier than it was possible to achieve a state of full employment. For example, manipulations with aggregate demand through the use of monetary and fiscal measures only led to the movement of the economy along a given Phillips curve.
Will there be stagflation in Russia
Due to the sharp devaluation of the ruble, the expert community is increasingly making poor forecasts. Experts say that there was no such fall even during the global financial crisis. Hence the assumption that Russia faces stagflation. What is it and what can turn out for the country's economy, we have already figured out. This will not turn out to be good for the economic situation in Russia, since stagflation combines the simultaneous decline of the economy and rising inflation.
The opinion of analysts
Will there be stagflation in Russia? What is it, will the Russians recognize? Or are these the next assumptions on the topic of the domestic economy, not confirmed in any way and not substantiated in any way? So, according to the statements of the economists of the HSE Development Center, Russia will soon encounter this unpleasant problem. Analyst experts explain their disappointing forecasts as follows. As you know, stagflation is a multilateral process in which one of the parties determines the decline in production activity.
Are there any signs of such a fall? If we recall the results of last year, then Russia closed it with an economic growth rate of 1.3%. At the last meeting of the Economic Council, Russian President Putin V.V. noted the fact that few countries in the world show such GDP growth rates. And for some, there is a drop in this indicator. For comparison, we can cite changes in GDP in Italy: there it fell by 1.9%, while in France it grew by only 0.2%. Consequently, we can conclude that the forecasts of experts are not substantiated in any way, and the Russian economy is not so bad as they try to show. But at the same time, do not forget that in the previous year, 2012, Russian economic growth reached 3.4%.
The other side of stagflation indicates a rapid increase in prices in the country. And in fact, according to statistics, in Russia consumer prices over the past year increased by 6.5%. For comparison: in the EU countries they rose by only 1%. In particular, a strong increase in prices was observed for the food group of goods - by 6.2%. If we again compare this indicator with data from the European Union, then there they grew by only 1.4%.
How indicators have changed in 2014
Food prices continued to rise this year. According to experts, their growth will become much more noticeable, especially if the price of vegetables, fruits, dairy and fish products, alcoholic beverages and public services increase. According to such gloomy forecasts, it is likely that inflation in the country by the end of the year may rise to 6%, that is, it will be 1.5% higher than the rate set by the Central Bank.
Most likely, the ruble will gradually weaken for a long time. This is due to many factors such as reduced imports, stagnation in the manufacturing sector, and a shortage of currency in the country. To everything else, geopolitical instability was added. The HSE notes that in order to change this situation, it is necessary to ensure a deeper devaluation of the national currency.
It is worth paying attention to another important aspect of stagflation, namely, the unemployment rate in the country. More recently, the government proudly stated that over the past ten years, Russia's unemployment rate has been the lowest. And this is actually so. In 2013, the unemployment rate in the country amounted to about 5.5%. But the economy in Russia is slowing its growth, therefore, it is expected that there will be more unemployed. According to forecasts, by the end of 2014 the unemployment rate may be more than 6%. Nevertheless, a rapid increase in this indicator is not yet expected.