We are currently in a period of stagflation, which is a combination of high inflation and economic stagnation. Stagflation occurs when the economy is weak and prices are rising at the same time. This is an unusual situation, as typically when the economy is weak, prices tend to fall.
Inflation is measured by the Consumer Price Index (CPI), which measures the average change in prices for goods and services over time. The CPI has been steadily increasing since early 2020, with some months seeing higher than average increases. This indicates that we are in a period of high inflation.
At the same time, economic growth has been sluggish since early 2020 due to the pandemic. GDP growth has been slowing for several quarters, indicating that we are in a period of economic stagnation. This means that while prices are rising, people’s incomes are not keeping up with these increases, leading to a decrease in purchasing power.
Stagflation can be difficult to manage because it requires both fiscal and monetary policies to be implemented simultaneously. Fiscal policy involves government spending and taxation measures to stimulate economic activity while monetary policy involves changes in interest rates and money supply to control inflation. Both policies need to be carefully balanced in order to avoid either inflation or recession becoming too extreme.
Overall, it appears that we are currently in a period of stagflation due to both high inflation and economic stagnation at the same time. This can be difficult to manage but with careful fiscal and monetary policies it should be possible to bring both inflation and economic growth back into balance over time.
