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More poverty and adaptation, the risks that economists see for stagflation – 08.12.2018



As it happened in the last three years before 2018, the Argentine economy is entering the process known as stagflation, a technical term that applies to the decline in economic activity over two consecutive quarters (recession) coupled with high inflation.

The Economist Victor Becker, director of Belgrano University's Center for the Study of the New Economy (CENE), says this combo is "the worst of the possible worlds," given that "annual retail inflation will exceed 45% minus 2, 5%. "

stagflation this is a rare phenomenon in the world, economists say. Especially because "normal" is that when a country's economy shrinks, inflation is also slowing down. In Argentina, this is the opposite.

"Usually price increases are accompanied by economic expansion processes, and in recessionary times prices are falling or even falling, but in countries with high inflation, it is still possible to continue with a sharp contraction of economic activity," Becker explains.

"There is inflationary momentum that makes past inflation to determine future inflation. Therefore, in the presence of restrictive monetary policyFirst, the quantities are adjusted by reducing production and employment, and only later inflation is significantly reduced. "

Becker admits, however, that the alternative explanation, which the central bank holds today, that inflation continues in a recessive period because money supply continues to grow.

The Economist Gabriel Selpo, by consulting firm Elipse, lists the reason why stagflation continues in the economy. "The external weakness of the country with a severe depreciation of the exchange rate "He adds: "The stagflation is that it does not allow expansionary monetary policy to counteract the economic recession."

from social damage of this economic process, Ramirez Castilie, of Econometric, lists "the steady and progressive deterioration of the quality of life and the progress of poverty, which is in terms of conjunctural and structural. "According to this analyst, Argentina is practically stagflation since 2011, because growth is zero. Reactivation does not last more than a year and only allows the recovery of the lost. "In addition, over the last eight years, the world has grown a lot more." "We still have the same quantities of goods and services to be distributed among the same people."

for when the economy can get out of stagflation, Zelppo says the expectation is a modest recovery of activity for the coming year, and a slight slowdown in inflation. Something that will be noticed for this year, but not so much in the month. "If its projections are met, inflation will be on average 2% per month by the end of 2019.


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