LStagflation (contraction of stagnation and inflation) refers to a period when a country’s economy experiences a combination of high inflation, slowing growth and rising unemployment. This was typically the case in the mid-1970s to early 1980s in industrialized countries, following the first oil shock of 1973.
The current economic situation in France refers to this idea of stagflation. The inflation rate (about 6%) is certainly the lowest of European countries, but growth will decrease and unemployment will increase, even if the energy shield has protected households for a time.
The awakening of inflation is linked to several elements:
- A catch-up effect of the economy linked to the end of Covid-19, which generated strong demand on the energy market of industrialized countries;
- Interest rates close to zero for the debt of households, companies but above all States, which have benefited from an unconventional monetary policy, causing speculative bubbles to emerge;
- A fall in the euro, which increased the cost of imports;
- The conflict in Ukraine, which caused a surge in the prices of raw materials and energy products.
While many economists predicted temporary inflation, it now turns out that we will have to live with this inflation for many more months. Milton Friedman (1912-2006), 1976 Nobel Prize in Economics and “father” of the Monetarist School, wrote in Inflation and monetary systems » (1969): “Inflation is just like alcoholism. When a man indulges in a drinking binge, the very evening it does him good. It is only the next day that he feels bad. It’s exactly the same for inflation. When a country engages in an inflationary process, at first people are euphoric for a while, because they don’t realize what is happening. There is a “boom” and the economy picks up again. This is paid for later, by an increase in prices and as prices increase, we are heading towards the stagflation that everyone deplores. »
Purge the system to begin healing
The American economist then advised a detoxification cure to purge inflation as one purges his alcoholism. “When a country undertakes to fight against inflation, at first it suffers: the effects are called lower growth, unemployment and even recession. It is only afterwards that he benefits from his conduct. » We are there today in Europe and the United States, with an activated detoxification cure. You have to purge the system to start healing.
You have 55.31% of this article left to read. The following is for subscribers only.