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Stagflation

 

Stagflation is an economical situation, when high inflation and stagnation of the economy come together. It is very difficult situation, because it not allows using monetary politics efficiently to revitalize the economy. (If money amount in the economy would be increased it would cause even higher inflation and could lead to hyperinflation, which would create even more problems).

 

Stagflation maybe is the worst situation for investors, because in such case there are no good alternatives for investing. When economy stagnates, stocks usually do not show good results and uncertainty of the future prompts capital from equity markets by little. But fixed income securities aren’t good investments as well, because high inflation may get even higher and may wipe out the real value of bond investments. 

 

Stagflation is completely different situation from deflation, because during stagflation inflation is high while during deflation inflation is negative. 

 

Stagflation isn’t very common situation in markets. Especially rear are cases when economy is at recession and inflation is very high, because in most cases inflation increases during economical boom, however, stagflation may come after long road of mistakes when inflation keeps for a long period until creates economical problems.

 

 






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