Stagflation is a state of the economy when the inflation rate is high, the economic growth rate slows, and unemployment remains consistently high. It causes trouble for policymakers because the solutions for lowering inflation and reducing unemployment are usually contradictory.
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Recently, consumer price increases surpassed previous predictions while economic growth slowed and both official and informal economic data have fallen short of expectations. It would seem like the risk of an extended period of stagflation is increasing, with the possibility of an economic contraction occurring in the second quarter of this year.
Now the government is under fire for not doing enough to help households in the fight against the cost-of-living crisis caused by rising inflation. Even within parliament, chancellor Rishi Sunak is under scrutiny for not providing, what his critics call adequate support, to those facing rising energy and food bills.
Stagflation is a relatively rare economic situation, last seen in the 1970s, that is trouble for consumers and businesses alike.
Economists are predicting that inflation will rise higher than 8% during the second quarter of 2022. The increase in the energy price cap for households set by the industry regulator in April isn’t expected to be the last, with a possibility of another in October. Economic contractions are also predicted for the second quarter thanks to the cost of living rising and real income falling and reduced output in the healthcare sector since COVID vaccinations are falling as well.
Experts say there isn’t much hope for a practically flatlined economy, with contractions and reduced growth predicted across the board for much of the year. A recession — two consecutive quarters of economic decline — might not be too far away, either.
The public is already at its limit, with some unable to pay essential living costs and it wouldn’t take much — a rise in oil prices or further supply chain disruptions — for the nation to plunge into a recession.
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