If stagflation actually occurs, it will be the first time in nearly 40 years since 1973. The most common cause of this is supply shock. It refers to cases where prices soar due to disruptions in the supply and demand of raw materials such as crude oil due to war. The stagflation, which occurred from 1973 to 1982, occurred as oil prices soared due to OPEC’s restrictions on oil supply.
The biggest reason for stagflation is also the supply shock. Following COVID-19, the Ukraine war and the city blockade following China’s Zero COVID policy made it difficult to procure raw materials and prices soared. For example, when the Ukraine war broke out, supply and demand of rare gases such as neon, krypton, and xenon were on alert, and prices soared up to tens of times. There will inevitably be a major setback in the production of semiconductors that use them as raw materials.
This will force companies to reduce production, or supply, and increase product prices. As production decreases and prices rise, stagflation occurs.
Prices fall in the event of an economic downturn due to reduced demand, not product supply. However, if the supply shock reduces the supply of products and causes an economic downturn, it is scarier for inflation to occur together. Some criticize that the U.S. Fed’s belated response has increased the possibility of stagflation. The U.S. Fed failed to respond to policies such as raising interest rates in advance because it misjudged that even if inflation hit, it would be only short-term and not severe.
Fortunately, many predict that the economic downturn will be “short and weak” even if stagflation hits. In the above-mentioned fund manager survey, 68% predicted that global inflation would slow over the next year. However, this means that the rate of increase is lower than the 8.3% surge in U.S. consumer prices in April, not that inflation is completely under control.
