Stagflation fears require firm action to quell panic
Soaring prices, hiccoughs in growth and rises in wages threaten a return of 1970s-style stagflation whose underlying causes the government must address sooner rather than later, writes Phil Thornton
To steal from Ernest Hemingway, there are two ways for an economy to go into stagflation – gradually and then suddenly. The odds of this awful portmanteau word – a combination of stagnant growth and inflation – becoming a reality have risen sharply in the last few weeks.
Prices of raw materials, fuel and supplies for factories among many other goods risen sharply, thanks to supply chain bottlenecks and labour shortages.
The Bank of England warned in August that inflation would rise to 4 per cent by the end of this year, but last week its governor, Andrew Bailey, added to the warning, saying developments since then meant inflation was likely to rise to further above that level.
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