Coronavirus: A Stagflationary Supply Shock?
(3 min read)
The unfolding supply shock from COVID-19 could see a more pronounced period of stagflation than that of the 1970s / early 1980s. Commodities can outperform other financial assets in such an environment by avoiding the rising risk premia and negative real rates impacting traditional financial assets.
Stagflation, a term coined in and still associated with the 1970s and early 1980s, is an economic environment in which growth is disappointingly weak, yet the price level steadily rises. This normally occurs when a negative ‘supply-shock’, such as a spike in imported energy prices, a trade war, or slump in productivity growth, hits an economy. While a net negative for headline growth, this can also place upward pressure on prices even as growth weakens.
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