It is an economic fact that it occurs when there is high inflation and economic growth stagnates (two unfavourable economic forces combined).
Several countries’ estimates show that inflation will stay high this year, but the rapid rise in interest rates and the prospect of further increases have a significant impact on economic activity, given that it primarily affects consumption and investment.
Furthermore, this condition will result in reduced access to money, which will be a significant restricting factor for market liquidity.
The risk of stagflation is latent, given that high inflation should be maintained in the future months, while less expansive policies will have an influence on global economic activity, resulting in a negative scenario in general.
The distinctions between inflation and stagflation are minor but significant. A period of high inflation, high unemployment, and a stagnating economy is referred to as stagflation. Historically, the investing climate has been negative during stagflation, as higher input prices combined with reduced sales often translate to poorer profitability per share for firms.
In this situation, the purchasing power of money is decreased, and corporate earnings may fall, potentially resulting in lower stock prices.
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