Global stagflation is now a very real risk, according to a new alert issued by the Bank for International Settlements. Stagflation occurs when poor economic growth happens in the same cycle as heightened levels of inflation – something that many countries are presently grappling with.
The bank’s quarterly reported explained that, “Higher commodity prices and dollar appreciation each increase the risk of weak growth alongside high inflation in commodity-importing economies, ie stagflation risk. The combination … [is] a departure from the historical pattern, raise[s] global stagflation risk.”
Federal Reserve rate hikes could have played a role in rising stagflation risks, as its policy action has enabled the U.S. dollar to retain strength.
“Commodity price rises tend to stoke inflation and choke off growth in commodity-importing economies, while dollar appreciation tends to have similar effects outside the United States, especially in EMEs,” the report continued. “Thus, the confluence of such developments over the past couple of years has significantly increased the risk of stagflation, i.e. that weak growth will coincide with high inflation.”
Stagflation could complicate the Federal Reserve’s mandate and cause it to pivot its course of action – with the bank adding, “Inflation driven by higher commodity prices could prompt a monetary policy response that dampens the real economy. A lasting positive correlation between commodity prices and the dollar exchange rate would imply greater challenges for macro-financial stability policies going forward. It could lead to greater macroeconomic volatility and more difficult tradeoffs between inflation and output stabilization.”
As we have seen countless times, gold is a very stable store of wealth and a highly desirable safe haven during periods of volatility. With uncertainty on the horizon, don’t delay. Buy gold now.
