EDITORIAL: Avoiding the stagflation of the 1970s

Rising price pressures have some people worried about inflation, while others wonder if inflation could lead to stagflation, which would hit the economy much harder. As Russia’s invasion of Ukraine intensifies, with more sanctions on Russia and more supply chain disruptions, the prices of energy products, agricultural products and raw materials have soared in boom, and concerns about the risk of stagflation at home and abroad are growing.

Today’s oil price volatility is reminiscent of the 1970s, when global inflation soared after Arab members of OPEC imposed an oil embargo against the United States in 1973 and the United States United imposed an oil embargo against Iran in 1979, resulting in stagflation: a situation of high inflation. , high unemployment and slow economic growth.

These major oil shocks were not the only challenges of the decade, but they were a big part of the problem. Soaring oil prices triggered inflation rates not seen since World War II in many countries as their economic growth rates fell dramatically.

Coface, an international credit insurance and management services group, said last week that Russia’s invasion of Ukraine had triggered turmoil in financial markets and significantly increased uncertainty about an economic recovery. world. The group added that rising commodity prices have intensified the threat of long-term high inflation, which would increase the risk of stagflation and social unrest. Amid this macroeconomic crisis, industries such as the automotive, transport and chemical sectors appear to be the most vulnerable, he said.

Although energy prices rose sharply last week – with Brent oil, the global benchmark, surging above US$130 a barrel to reach the highest price since 2008 – and consumer price data published by the United States and European countries indicating that inflationary pressure is building faster than expected, today’s rising inflation is different from the stagflation of the 1970s.

At that time, there was a shortage of basic necessities, as well as rising energy costs, and some governments were inexperienced and made poor policy decisions – such as price and wage controls and rationing – which which only made the problem worse once the checks were done. survey.

Today there are shortages of some goods and rising energy costs, but these are mainly the result of increased demand as economies reopen and disruptions to supply chains and logistics due to the COVID-19 pandemic, not the direct effects of embargoes or boycotts.

Since 1990, there has been no global inflation or stagflation, thanks to free trade and global production, trends that have helped stabilize global supply and limit rising prices.

So far there are no signs that stagflation is setting in. A slight increase in consumer prices is not necessarily a bad thing, as it is simply a result of current economic activity and is beneficial for economic growth.

As the state of affairs since 1990 has shown, as long as free trade continues and global production remains the model, stagflation seems an unlikely scenario, even if price swings occur due to conflict. Russian-Ukrainian.

As Taiwan’s consumer price index rose 2.36% year-on-year last month – remaining above the central bank’s 2% warning level for the seventh consecutive month – and that inflation risks are biased on the upside, as Russia’s invasion spiked prices and heightened the risk of broader supply disruptions, policymakers must carefully balance inflation control and policy measures economic growth, implement measures to care for the most vulnerable in society and closely monitor the economic climate abroad.

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