In the prior two posts we defined and discussed those “flations” that are most commonly known to those in and out of the financial world.
The third and least known ‘flation’, Stagflation, is the combination of high inflation and high unemployment accompanied with slow economic growth – an economic situation that is generally avoided.
The 1970’s oil embargo, where oil prices rose dramatically and affected consumer prices, is probably the most recent example of stagflation on record, though some economists feel the U.S. is currently experiencing this very thing during the present recession.
Stagflation is a scenario to avoid, the simple reason being is that it can be difficult to control; if the focus is to control the inflation portion, this could cripple economic growth even further and by trying to promote growth by easing credit may actually increase Inflation further.
As such, great difficulties exist in recovery.
Always make sure that you make an informed decision in all cases,
All the Best,
Capital Corp Merchant Banking 