High inflation readings across many economies in recent months has led to talk of “stagflation”. First coined in the early 1970s, stagflation commonly refers to a period of stagnant (or indeed recessionary) economic growth accompanied by stubbornly high inflation.
The term is synonymous with the global economic regime that characterised much of 1970s and early 1980s as inflation surged to double-digit rates and remained stubbornly high – even in the face of three global recessions in the space of less than 10 years. This was also a fairly dire period for investors (apart from gold bulls), so talk of stagflation, if anywhere near the mark, is a potential concern for investors.
At the outset, we would emphasise that we think that the characterisation of the current (or near-term) economic environment as “stagflationary” is a fair way wide of the mark.
While inflation is currently well above the experience of recent decades, economic growth is also running at an above-trend pace. So, while there is a strong inflation pulse currently running through the global economy, there is little evidence, or in our view, little near-term risk of economic stagnation.
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Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.