📺 ARGH! You've heard of it - what does STAGFLATION mean?
Definition:
Stagflation is a rare and harmful economic condition characterised by the simultaneous combination of stagnant economic growth (low growth), high unemployment, and high inflation. It represents "the worst of both worlds" because traditional policies to fight inflation (i.e. RBA rate rises) can worsen unemployment, while actions to boost growth (i.e. Government spending or RBA rate cuts) can further increase inflation. It can become like a repeated cycle.
Why is Stagflation dangerous?
1️⃣ Policy dilemma: The RBA typically raises interest rates to fight inflation, but this hurts growth and employment. Conversely, cutting rates to boost employment fuels inflation.
2️⃣ Reduced purchasing power: Consumers face higher prices for everything, while income growth is weak or non-existent.
3️⃣ Stagnant Growth: Businesses are hesitant to invest or hire, due to low demand (sales) and rising input costs (power, wages).
Stagflation touches us all, nobody is immune to it.
It will be interesting to find out about the federal government plans soon in the May 2026 budget.
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