Global Stagflation Ahead?

Nouriel Roubini | Jun 10, 2008

The recent rapid rise in commodity prices – oil, energy, metals and agricultural commodities – is leading to the concern that the ensuing rise in global inflation may be associated with a slowdown of global economic growth if not an outright global recession; i.e. there are rising worries about stagflation, a deadly combination of rising inflation and economic recession.

Indeed, not only inflation is rising in many advanced economies and emerging market economies but there are signs of a likely economic contraction in many advanced economies (the US, UK, Spain, Ireland, Italy, Portugal, Japan). In emerging market economies the rise in inflation has been associated so far with rapid economic growth and economic overheating; but there are worries that the economic contraction in the US and other advanced economies may lead to a growth recoupling – rather than decoupling – in emerging markets at the time when rising inflation is forcing monetary authorities to tighten monetary and credit policies to control rising inflation; so “stagflation lite”, i.e. rising inflation cum sharply slowing growth may soon become a problem also for emerging market economies. So should we worry about stagflation or “stagflation lite”?.. Details