Matthew Weller | Oct 15, 2021 05:17
For the uninitiated, “stagflation” is a term that was coined in the 1970s to refer to an economic environment characterized by STAGnant growth and elevated inflation. Back then, central banks were enacting an easy money policy at the same time that surging energy prices created “cost-push” inflation for individuals and businesses, weighing on economic growth across the globe.
Sound (at least somewhat) familiar?
While the global economy hasn’t experienced a meaningful bout of stagflation in the last 40 years, some analysts are starting to think that exact scenario may be emerging again, with the combination of easy monetary policy and a surge in energy prices leading to persistent inflation and potentially slowing growth. Indeed, according to a recent Deutsche Bank AG (NYSE:DB) survey, a “fairly strong consensus” of market professionals believe some kind of stagflation is more likely than not. As my colleague Joe Perry outlined yesterday , the above-expectation 5.4% y/y inflation reading signals that “perhaps inflation may not be as transitory as the Fed had originally thought.”
Of course, to put the recent developments into context, price increases in most developed countries are nowhere near the double-digit inflation rates that characterized much of the 1970s, and global economic growth is still running relatively hot as we continue to recover from pandemic-driven lockdowns; in other words, stagflation is far from inevitable or even necessarily likely at this point, but it is still a risk for readers to have on their radars.
h3 So what markets benefit from stagflation?/h3If we do enter a stagflationary environment, there may be relatively few investments that perform well:
Despite the recent uptick in headlines about stagflation, it still is not the most likely scenario for the global economy at the moment. That said, any successful trader will tell you that preparing for multiple scenarios in advance is the best way to be prepared regardless of what the future brings. As always, we’ll continue to monitor economic data and other developments to keep our readers as informed and prepared as possible for whatever the future brings!
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