- Because the economy is based on credit, both growth and expansion are necessities. As such, the biggest fear of central banks is deflation and stagflation. Take the UK as an example, although this can be attributed to many Western countries.
Three metrics that contribute to stagflation;
- Persistently high inflation: Inflation has been above the CPI target of 2% for over a year, and the biggest concern for central banks is entrenched inflation. For example, in the UK, CPI inflation has been in double digits for almost a year, while core inflation has been running at 6% for over a year.
- Stagnant demand in a country’s economy: British real GDP it is still below the fourth quarter of 2019.
- High unemployment: We’re not there yet, but the UK unemployment rate rose from 3.7% to 3.8%. As interest rates continue to rise and remain high, this will put more pressure on the labor market.
Stagflation was last seen in the 1970s, and prices of consumer goods tend to rise while asset prices tend to deflate. Central banks are caught between a rock and a hard place.
previously covered a look at asset prices between the 1970s and the 2020s.
The chargefirst appeared in .