STAGFLATION :-
Stagflation is known as an economic condition in which slow economic growth and high unemployment mixed with rising price (inflation). Stagflation affects the economy negatively due to slow economic growth, high unemployment and high prices. The two main causes of stagflation that are agreed upon by economist are supply shocks, and fiscal and monetary policies. The supply shock theory suggest that stagflation occurs when an economy faces a sudden increase or decrease in the supply of commodity or services such as a rapid boost in the price of oil. This makes prices surge and production costlier and less profitable, leading to slow economic growth.
Second theory suggest that stagflation can be result of a poorly made economic policy. for example, Govt. made a policy that affect the industries or supply of money in large quantity in economy in very short period of time. Simultaneous occurrence these policies can lead to slower economic growth and high inflation.
Going at its deepest level, stagflation is one of the most difficult economic environments for central banks and policymaker to overcome.Beating high inflation when the economy is stagnating is a tough nut to crack for any investor.
It is advisable for investor to be prepared to take a risk, invest in companies that are capable of making money despite the conditions or wherever the stand in the world.
Sources: DSIJ JOURNAL.
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