According to Nouriel Roubini, Stagflation Is a Problem Caused by Interest Rate Increases Rather Than Inflation Itself

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Nouriel Roubini, the US-based economist, is warning that a perfect storm of high inflation, rising interest rates, and economic recession is looming soon. This storm, which he has dubbed “stagflation,” could have disastrous effects on workers and businesses worldwide.

“When gas prices go up, you get inflation, you get a recession, you get stagflation, but you also get what I call a great stagflationary debt crisis,” said Nouriel Roubini.

The warning has been further validated by recent figures released by the National Accounts from the Bureau of Statistics. According to their report, real household disposable income per capita fell for the fifth consecutive quarter.

This decline was attributed mainly to a sharp drop in inflation-adjusted hourly pay, which plunged 5.4 per cent during this period. The report also showed that real wages had remained virtually unchanged from levels seen back in 2012 levels.

In many Australians’ minds, stagflation – where prices rise despite a shrinking economy – has already begun. The cause of this economic malaise can be traced back to a surge in interest rates across the board.

Dr Roubini believes that the stagflation crisis could worsen as the year progresses. Already, consumer spending has decreased in many countries, while at the same time, prices have continued to rise. This combination of deflationary and inflationary pressures could lead to higher unemployment rates and a recessionary spiral.

“I do believe that this stagflation rate crisis is going to emerge this year,” he said.

“The US and Europe will experience a recession at a time when inflation is not back to 2 per cent, so we’re likely to have a recession when inflation is not back to 2 per cent.”

In short, Nouriel Roubini’s warning appears increasingly pertinent as economic conditions continue to deteriorate in Australia and worldwide.

It remains to be seen whether government policies can significantly impact the current state of affairs or if it will take an external shock, such as a new technological innovation or financial crisis, before real change occurs.

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