Stagflation fears based on 'misnomer'

Spectre of stagflation seems unlikely

Lauren Mason
clock • 3 min read

The “nightmare scenario" of stagflation rearing its head is less likely than many investors think, according to investment professionals, who say the current backdrop is not comparable to the last prolonged period of stagflation during the 1970s and early 1980s.

However, they warn that expectations for stagflation could lead to a "significant reversal" across nominal bond and equity markets. Stagflation, when economic growth slows and unemployment increases while inflation ticks higher, creates a tough environment for investors, given consumer spending slows, companies' earnings fall and unemployment continues rising.  It is a difficult cycle to break, as evidenced between 1973 and 1982, when the oil embargo of 1973 hit prices and first challenged the seemingly stable inverse correlation between inflation and unemployment. But despite the ...

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