Stagflation vs. Inflation: How Do They Differ?
Inflation, stagflation—what’s the difference? Is there one? We hear these words floating around in the news, but the two are not the same. Economies are always changing; they fluctuate. Let's have a deeper look at the definition of these phenomenons and the key differences between them.
When growing, there’s usually a low level of inflation, with only a minimal increase in the prices of goods and services. Inflation isn’t necessarily bad; it can boost economic growth, which is why banks and governments try to keep inflation around 2% per year.
But sometimes, inflation pops up when economic growth drops, and this is called stagflation (and it’s never good). But don’t worry; we’re not going to leave you on that cliffhanger. In this post, you’re going to learn the differences between inflation vs stagflation.
Stagflation vs. Inflation: Key Takeaways
- Inflation is when the prices of goods and services increase, with the value of money decreasing.
- A low and continuous inflation rate of around 2% is a positive sign of economic growth.
- Stagflation is when prices continue to rise during a downturn in the economy and is hard to recover from.
What is inflation?
While we explained above that inflation is the increase in prices of goods and services, there’s more to it. So what is inflation? Inflation is typically caused by the demand for goods and services that exceed the supply.
The current causes of inflation have been due to the disruption in the global supply chain and the consumer demand post-Covid-19 pandemic. Additionally, geopolitical interferences like the Russia-Ukraine conflict have also increased the price of commodities such as oil.
Inflation affects everyone; however, not in the same way. Often, individuals living on a fixed income are negatively impacted by rising inflation. Whereas some investors with diverse portfolios may even benefit from inflation. For example, investors can use the BOTS app to diversify their portfolios by funding our staking, shorting, or HODL bots.
What is stagflation?
Stagflation is when a mix of stagnation and inflation is happening at once in the economy. An economy experiencing stagflation has increased prices for goods and services, rising interest rates with high unemployment, and slow to no economic growth.
During this period, both individuals and businesses suffer from increased prices and lower sales. Though both are considered to last long-term, a significant difference between inflation and stagflation is that the latter typically has a lifespan that causes severe economic damage.
How can you protect your assets?
While stagflation can cause severe economic damage, you can try to minimize its effects on your portfolio by investing in stocks, real estate, gold, commodities, or cryptocurrency. While these assets are not guaranteed to protect you fully, they are definitely options worth considering.
When you look for ways to hedge against inflation, you may see similar suggestions from investors across the globe. You could consider investing in real estate, or in Treasure Inflation-Protected Securities, or go the crypto way. You can lower the risk levels by spreading your investments out over various asset classes and not putting all your eggs in one basket.
Recommended: What are the different types of asset classes?
Alternatively, why not enlist the help of experts at BOTS to help you through your investing journey? Download the app today OR read more about how the BOTS app works.
Stagflation vs. Inflation: Key Differences
We talked about stagflation vs. inflation; let’s recap the key differences. So, how does inflation differ from stagflation?
- Inflation can be caused by the rise of demand or cost of production that decrease supply.
- Stagflation can be caused by insufficient monetary discipline and supply shock in commodities such as oil.
- Slow inflation (around 2%) often occurs and shows a healthy economy. For example, in the US, since 1940, inflation has occurred annually except for three years.
- Stagflation, on the other hand, is not as common. In the US, the last period of stagflation was in the 1970s.
- Inflation is measured annually and averages around 2% per year. Periods of inflation over 5% are not common in the US economy.
- Stagflation is long-lasting. The last period of stagflation in the US was in the 1970s and didn’t end until the 1980s.
- High inflation can end when consumer demand is reduced via increased interest rates, decreased government spending, and higher taxes.
- Stagflation recovery is long-term and challenging as the economy is faced with both inflation and slow economic growth.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing.
Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.