Jun 022008

Stagflation. Coined in 1965 by the British Chancellor of the Exchequer, intended to describe an economic phenomenon whereby inflation rises while economic growth stagnates, or even recedes.

Have a read of this piece from today’s Oz. Then have a read of the definition of stagflation in Wikipedia. Frightening parallels, wouldn’t you say? Let’s compare in relation to the current state of the Australian economy.

….stagflation can occur when an economy is slowed by an unfavourable supply shock, such as an increase in the price of oil in an oil importing country…


….which tends to raise prices at the same time that it slows the economy by making production less profitable….


….both stagnation and inflation can be caused by inappropriate macroeconomic policies…

Check, and thank you, John Howard!

….while central banks tend to use excessively stimulative monetary policy to try to avoid the resulting recession, causing a runaway wage-price spiral.

Welll……alright, we do have a central bank applying monetary policy, but I doubt anyone would regard the application, at this stage anyway, as excessive or stimulating. That doesn’t mean we’re not staring at imminent

stagflation though. Speculation by NYMEX and associated exchange dealers is driving the price of oil ever higher, beyond the ability of even OPEC to do anything constructively beneficial for we mere mortals. That price increase is now being felt in consumer goods that reach the points of sale by road transport, ie; food is getting dearer. It’s now just a matter of time before the wage-price spiral begins to make its presence felt.

Y’know, sometimes in my quieter moments, I hear a faint voice saying something about a banana republic and recession we had to have…..

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