stagflation

The ECB meeting took place yesterday and there were no many changes since last meeting but Christine Lagarde made it clear that there is not risk of Stagflation.

James Novotny discusses stagflation and asks whether central banks are about to make a mistake.

Many economists have fretted that an unintended consequence of giving away free money, via quantitative easing (QE) and ultra low interest rates, is that prices ultimately rise but nothing extra is produced.

In the US, the latest inflation data is further testing the US Federal Reserve’s hypothesis that inflationary pressures are transitory in nature.

Investors have shifted focus from the immediate COVID-19 threat to the prospect of a cyclical slowdown and secular stagflation.

In my view, stagflation is a near-term risk but is not a long-term concern for investors as I believe that inflation remains transitory and will come down as supply chain disruption eases and supply is able to catch back up with demand.