Inflation and stagflation – Find out what is the difference and why it matters

inflation and stagflation

In the macroeconomic sphere, the words inflation and stagflation are now heard very often. These are very important concepts.

Let’s take a look at what experts think about inflation, stagflation and further development.

Pandemic and more

Let’s start with a pandemic. The pandemic entered our economy like a Tsunami. Governments were trying to fix the sudden recession in every possible way. Most often we saw a massive pumping of money into the economy.

At the same time, it cannot be ruled out that a period of high inflation will follow soon, before the recovery can take place. Other factors, influencing the economic development, may include rising unemployment rates, bankruptcies and growing protectionism. 

Data noise

Many economists agree on the initial shock that brought the disinflationary impulse. However, they can no longer agree on what will happen next. Some argue that an increase in the money supply will inflate the bubble. Others fear that persistent inflationary pressures will be develop over time and inflation will be above 2% in the long run.

In the US, the consumer price index has recently risen. However, this is not a sign of regime change. For the most part, this is just data noise, which will have to be taken into account for a few more months. For example, the high consumer price index is caused by more large-scale redundancies. It is therefore not possible to rush to conclusions.

Inflation and stagflation

It is certainly worth remembering what the terms inflation and stagflation are, as they will be discussed more and more often.

Inflation is an increase in the general price level of goods and services in the economy over a period of time. Alternatively, we can define it as a reduction in the purchasing power of money.

Stagflation is a combination of stagnation and inflation. That is a high rate of inflation and a high rate of unemployment. It is typical for situation, when the economic system is in a shock.

Conclusion

We are rushing into a financial crisis and we are still just at the beginning. If you don’t want to be affected by inflation and lose your savings, let your money work and invest in assets that will protect you from inflation – cryptocurrencies or precious metals. But remember the golden rule – only invest as much as you can afford to lose.

Source: faei.cz

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