The Rising Spectre of Stagflation

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20211011 COTD x The Rising Spectre of Stagflation - chart website

Source: Bloomberg, Unigestion, as of 30.09.2021.

After a strong global economic recovery in the first half of the year, the events of Q3 – weakening growth and continuing inflation – have become concerning and raise the potential risk of stagflation. In the 1970s, OECD countries were hit by the 1973 oil embargo which impacted prices and reverberated throughout the decade.

Our chart shows growth and inflation for the US and UK during the period, highlighting a similar pattern seen with many other OECD countries at the time: a cyclical recovery in the early 1970s derailed by the oil crisis (grey vertical line), after which growth and inflation decoupled and stagflation became the emergent regime. While the current spike in inflation goes beyond oil and energy prices, stagflation remains a rising risk.

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