On rare occasions, high inflation persists even as the economy slows and unemployment rises, resulting in stagflation.
June 14, 2022, 5:01 AMJim Lo Scalzo/EPA via ShutterstockBut many have offset the damage, at least in part, with wage increases driven by high demand for workers and resilient consumer spending. In short, strong pockets of the economy have blunted the worst effects of severe inflation.as the Federal Reserve raises borrowing costs through a series of interest rate hikes — an effort to tame inflation by slowing down the economy and eating away at demand.
"Stagflation is basically the worst of all worlds," Veronika Dolar, a professor of economics at Long Island-based State University of New York Old Westbury, told ABC News. "It's the place you definitely don't want to be."Usually, in good economic times, low unemployment forces employers to raise wages so they can retain or attract workers, which heightens consumer demand and steepens price increases.
Job seekers and employers meet during a Job Fair at the Hotel Indigo in Riverhead, New York, on April 7, 2022.No single economic authority formally decides whether stagflation has occurred, unlike a period of recession, which the National Bureau of Economic Research determines, Campbell Harvey, a professor of finance at Duke University's Fuqua School of Business, told ABC News.
Instead, present-day inflation is owed to generous central bank and Congressional policies in response to the pandemic, which flooded the economy with money, spiked demand and exacerbated a supply chain bottleneck, Harvey said. Moreover, the price crunch has intensified amid the Russian invasion of Ukraine, he added.Some economists, like Dolar, believe we're already in a period of stagflation. She noted that the U.S. gross domestic product shrank at an annual rate of 1.
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