India’s rising retail prices stoke worries of stagflation

3 min read

News:India’s retail price inflation has jumped to a 40-month high at a time when India’s growth has slowed down to a six-year low.This has prompted some economists to warn that the country could be entering into a stagflationary phase. 

Facts:

About Stagflation:

  • The term Stagflation was first coined by Paul Samuelson who was the first American to win the Nobel Prize in economics.
  • Stagflation is a condition of slow economic growth and relatively high unemployment, or economic stagnation, accompanied by rising prices, or inflation. 
  • It can also be defined as inflation and a decline in the gross domestic product(GDP).

What causes Stagflation:

  • The most analysed  episodes of stagflation is the one in the US that began in 1974 and ended in the early 80s. 
  • It was set off by a series of supply shocks led by surging oil prices and an excessively expansionary monetary policy especially in 1972-73, which allowed expectations of inflation to become entrenched. 
  • This led to a breakdown of the inverse relationship between inflation and unemployment as suggested by the Phillips Curve.

Additional information:

About Phillips Curve:

  • Phillips curve is a graphic curve which advocates a relationship between inflation and unemployment in an economy. 
  • As per the curve,there is an inverse relationship between inflation and unemployment.
  • The concept states that with economic growth comes with inflation which in turn should lead to more jobs and less unemployment.