Is Stagflation Coming?

Add a Pinch of Tariffs and a Dash of Rate Cuts

Ben Le Fort
Jun 26, 2019 · 3 min read
Photo by Jp Valery on Unsplash

What is stagflation?

A country is said to be experiencing stagflation when it is experiencing low levels of economic growth, high levels of unemployment and high levels of inflation. This is where the term “stagflation” comes from, it refers to a situation of a stagnant economy and high inflation.

What is stagflation so bad?

Stagflation brings serious economic pain.

Could we be heading for a period of stagflation?

For stagflation to occur, two things need to happen at the same time.

  1. Unemployment needs to increase

Inflation

The U.S recently increased tariffs on Chinese goods for the third time in the past year. There are now 25% tariffs on $250 billion worth of Chinese goods. Thankfully The U.S backed off its threat to apply 5% tariffs (which may have risen to 25%) on all Mexican imports into the U.S which totals $372 billion.

Unemployment

Typically, prices and inflation rise as a result of increased consumer demand. That is not what is happening here. The tariffs artificially raise the price of imported goods, regardless of consumer demand.

  1. Eat the cost of tariffs (and watch their profits drop)

More inflation

What has me worried are the comments recently made by the Chair of the Federal Reserve where he hinted the Federal Reserve may cut interest rates if the trade war gets out of hand.

  1. keeping inflation in check
  • If they raise rates, they will bring inflation down, but the economy could slip into a recession

Impact Economics

Our Goal is to Make Economics Understandable and Relevent

Ben Le Fort

Written by

Sharing the money lessons I’ve learned on my journey from debt to Financial Independence. Email me for freelance & Business inquiries: info@benlefort.com

Impact Economics

Our Goal is to Make Economics Understandable and Relevent

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