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Economists define stagflation as periods of high prices and slow growth. According to Peter Boockvar, chief investment officer at Bleakley Advisory Group, stagflation is a central bank’s greatest fear. 

Many economists believe that stagflation is not as unusual as it appears. It’s a term most people associate with the 1970s; most economic recoveries end with stagflation, which usually precedes recession. 

According to many economists, we are already experiencing stagflation. 

Given the region’s production of oil and food products, as well as the reactions of governments and businesses around the world, there is little doubt that Russia’s attack on Ukraine would raise prices. What is less clear is whether the current period of rising inflation will result in stagflation.

Since Russia began the war, the price of wheat has risen by more than 20%, while the price of crude oil has risen by about 10%. Simultaneously, the world’s largest shipping companies, which control roughly one-third of the world’s container fleet, have announced a halt to all shipments to and from Russia. These actions will exacerbate supply chain stresses and contribute to price increases for food, gasoline, and other commodities, while global central banks are only now beginning to respond to offset pricing pressures.

With annual consumer price inflation in the United States currently at 7.5 percent, the highest since 1982 and far exceeding the Federal Reserve’s long-standing 2 percent target, investors should brace themselves for significantly higher prices for an extended period of time. The question then is whether central banks will prioritise price stability over growth by tightening monetary policy. 

Given this context, it’s understandable that investors and economists are concerned about the worst-case scenario of high prices and declining growth. As a result, the likelihood of stagflation is increasing, and investors may seek refuge elsewhere.