WORST OF BOTH WORLDS
Australia has enjoyed several decades of low inflation, but this has not always been the norm. The resurgence of inflation over the past few months has raised the possibility of wider economic problems if it is not brought under control.
While higher inflation is usually linked with a booming economy, there are instances where we see the worst of both possible worlds: high inflation and slow or falling economic growth.
This is stagflation, and unfortunately it tends to come hand in hand with high unemployment. Businesses shed jobs because growth is slow, but consumers are faced with job losses and soaring prices at the same time.
Inflation normally goes up when the economy is growing, businesses are enjoying good profits and consumers are spending. So long as it doesn't rise so fast that it erodes the value of money, that's generally regarded as okay.
But with stagflation, inflation runs so hot that wages, business profits and the economy don't keep up, leading to bad economic outcomes.
Because it's not part of the normal cycle, stagflation is more commonly associated with events outside the norm. The last time Western economies saw problems with stagflation was in the 1970s when the global oil shock sent prices spiralling and exacerbated the downturn in an already slowing US economy.
Many economists and commentators are concerned we're heading down the same path again with inflation rising due to Covid-related supply problems and the economic fallout from the conflict between Russia and Ukraine and the economic sanctions imposed on Russia.
This story is from the June 2022 edition of Money Magazine Australia.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the June 2022 edition of Money Magazine Australia.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
Is the public market shrinking?
Australia needs a healthy stock market to give companies access to funds and to allow retail investors to build wealth.
India: three steps to transformation
Massive investment and extensive reforms turbocharge the economy.
The ballet of business
Changing direction, products, models and marketing is a hard task for a business. We chart what it takes to turn a business around, plus profile four successful pivots.
Save money and the planet
Could the high cost of living give us the incentive we need to reduce how much water and energy we use or waste? These eco-friendly household tips will help you do just that.
AI adoption is the new black
Artificial intelligence is set to reshape the commercial world, and small enterprises can’t afford to miss the boat.
Spam attack! Murky laws jam our inboxes
Unwanted marketing material is one of the pain points of modern life.
From rags to riches in style
Rich Tran sported a bowl cut until he was 14 years old and had no intention of becoming a hairdresser.
New work deals are killing the 'old' office
The Covid pandemic and the subsequent lockdowns accelerated the trend to more people working from home. It was a mixed experience.
Points taken: the truth about rewards
Can hopping between credit cards really boost your frequent flyer haul and give you cheap or free travel - or is it doing more harm than good behind the scenes? Money puts it to the test.
Shortcuts to own a home
Innovative ideas with a focus on low costs and sustainability could help solve the housing crunch.