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What is Stagflation?

Is India's economy in risk of a stagflation?

Let’s understand what stagflation is first...

Stagflation is an unfavorable economic situation where the inflation is high and on the rise but the country’s economic growth rate is slowing.

Stagflation occurs when there is both high inflation and a recession in the economy.

Consider this example. When the economy is good, employers will raise salaries to retain or attract workers. However, if the economy is slow, it will result in stagnant or reduced salaries. This is an effect of stagflation.

No wonder stagflation is considered bad. As unemployment levels increase, it would result in a drop in consumer spending.

It becomes extremely difficult for any central government to control such a situation as any effort to boost the growth can increase the inflation at the point and further dampen the economic growth.

As things stand now, everyone is worried whether high inflation, the rise in unemployment and less consumer spending will cause stagflation.

India is currently experiencing the cost push inflation environment. This type of inflation is caused by the rising raw material prices.

Given the current circumstances, India does not appear to be facing stagflation; nevertheless, if the geopolitical crisis worsens, the situation might quickly deteriorate.

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