“There is going to be a stagflation, because when you carry out the fiscal reorganization that will have a negative impact on economic activity. That’s why I say that the only wallet that will be open is yours. Human capital to provide assistance to the fallen,” he said this Wednesday Javier Milei after his return to Argentina after a brief trip to the US.
In this context, doubt arose among listeners about what is stagflation, one of the many definitions left by the future head of state in statements to Radio Rivadavia in which he also assured that, from the outset, his management hopes to put an end to inflation “in a period of between 18 to 24 months“.
As the director of NM Consultora explains, Natalia Motylin statements to Ambitstagflation is inflation union (when the prices of the things we buy rise) and economic stagnationthat is, companies do not produce more, more employment is not generated and People do not receive more money for their work.
This, according to the economist, means that “With their money, people do not buy more things because salaries do not grow and prices increase sharply”. Likewise, he warns that when there is stagflation it generates “less employment because companies do not grow.”
Motyl indicates that it is a phenomenon even more “difficult to combat” because monetary or fiscal policy to resolve the issue of inflation or stagnation they are contrary to each other. For example, a fiscal policy that puts money in people’s pockets would encourage people to buy more things, something that would reverse the expectations of people who produce them and decide to produce more. ““That would aim to reverse stagnation, but it would greatly aggravate inflation, since with the same production and more demand, prices will increase,” Motyl asserts.
What the analyst means is that measures to stop inflation, such as increasing interest rates or increasing fiscal pressure, usually reduce consumption, which in turn affects economic growth. On the other hand, initiatives to boost the economy, such as reducing interest rates or increasing public spending, They can generate an increase in prices and, therefore, inflation.
Stagflation: its causes
The causes of stagflation are usually found in mixed economies, dwhere free market principles and government regulations coexist. Factors such as the establishment of a minimum wage, unemployment subsidies, fiscal and monetary interventions, among other measures, can cause the economy to behave in a divergent manner with respect to traditional economic theory, causing significant distortions.
Stagflation represents one of the most complex economic scenarios to address, since economic policies to get out of recession can harm the fight against inflation, and vice versa. This contradictory interaction between the objectives of economic stimulus and inflation control further complicates the resolution of this anomalous phenomenon.
- Reduce inflation: This can be done by raising interest rates or reducing aggregate demand.
- Stimulate the economy: This can be done by reducing interest rates or increasing public spending.
It should be noted that there are those who believe that Argentina has been in stagflation for years, since inflation has remained at high levels and economic growth has been weak.
Source: Ambito
