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The Implications of Stagflation

Australians are now experiencing a return to some semblance of normality in the workplace. Staff are returning to the office, and many industries have finally re-opened. Although, despite the positive change, the impacts of the pandemic are far-reaching and likely to continue for some time. We have recently heard about 'stagflation' in the media. But what is it? And how can it affect your financial position?

The meaning of stagflation is an economic position where inflation increases but economic growth slows, and unemployment rates rise. On a national and global scale, COVID-19 has impacted many industries resulting in lower production and significant supply chain blockages. Furthermore, the increasing price of oil, coal and gas is sending the cost of energy up, and it's a said cost that consumers receive the brunt of through the increased price of goods.

At the same time, demand has increased in several areas such as luxury items, cars, home improvement and real estate. This increase has caused a further imbalance in supply and demand, resulting in prices surging for many goods and services, particularly as we head into the end of the financial year.

"alongside this inflation, we are not seeing wages increase; unemployment is rising, and economic growth has slowed."


And yet, alongside this inflation, we are not seeing wages increase; unemployment is rising, and economic growth has slowed.

However, while this position may seem alarming at face value, most economists believe we will not return to the dire stagflation levels seen in the 1970s global financial crisis. Policymakers learned from experiences during that time, and industries are different now due to technology and the saving grace of our strong economy before COVID-19. Moreover, we know the cause of this imbalance and stagflation lies in the specific trigger event in the COVID-19 pandemic.

"leading economists believe we will not return to the dire stagflation levels seen in the 1970s global financial crisis."


As the world slowly returns to normal and the disruptions to supply chains ease, inflation is likely to return to pre-pandemic levels gradually, and the economy will likely begin to mend itself.

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Welcome to Finance Matters with George Shaheen

Read Finance Matters and be informed on what's happening in the market and the current business environment.
For George's first blog, he talks about the cost of living, interest rates, and how to be prepared for the future. 

The 2022-23 Victorian State Budget was handed down by the Victorian Treasurer on 3 May 2022 with the Government forecasting a net operating deficit of $17.6 billion this financial year.
The budget mainly focused on health, education and infrastructure projects within Victoria and introduced no key changes to Victoria’s current taxes and duties.

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