Global Stagflation Reminiscent of The 1970s Is Forming, and It’s Bad News: National Bank

Dust off the disco ball and rolled up dollar bills, because the 1970s are back. At least the signs of 70s-style stagflation are forming, according to one of Canada’s Big Six banks. National Bank of Canada (NBC) chief economist Stéfane Marion warned clients of the rising risk of global stagflation. Rising oil prices, soaring food costs, and slow economic growth are all surfacing. This growing issue threatens to undermine the global recovery. 

What Is Stagflation?

Stagflation is high inflation during a recession, when it typically shouldn’t be seen. In a healthy scenario, inflation is the result of rising productivity and a tight job market. It’s viewed as a side effect of too much success. During stagflation, inflation rises with high unemployment and slow growth. It’s often the result of lower confidence in a currency. 

It might be obvious why this is an issue, but let’s just spell it out for everyone. Rising inflation for essential goods means diverting spending from other areas of spending. Diverted cash diverts revenues for certain companies, which can further slow growth.

One of the most well-known periods of global stagflation was the early 1970s. Oil trade restrictions resulted in rising energy costs, which trickled into most goods. This made already elevated inflation even worse, especially for food. Since this was during a recession, it exacerbated the difficulty of unemployment. Keep this in mind when reading the tale from NBC. 

Early Signs of Stagflation Have Begun To Appear

The bank sees some signs of stagflation beginning to appear in the economy. Like in the 1970s, it’s starting with a shock to energy prices. A shortage, and rising carbon permit costs in OECD countries are causing a price squeeze. This can hurt emerging economies, slowing global trade. 

All while the pandemic recession is still raging on, with elevated unemployment. NBC said, “the risks of a stagflation scenario are increasing.” 

“This confluence of factors is looking more and more like a supply shock reminiscent of the early 1970s, when soaring production costs idled industrial capacity and lowered potential GDP for many quarters,” he said. 

Rising Global Food Prices May Slow Global Economic Growth

Global food prices are rising at an unusually fast rate these days, and it’s not a base effect. The United Nations Food Price Index (FFPI) shows the basket price of food is up 30% year to date, from it’s 2020 average. NBC found this is the largest increase over the last 47 years of data. It’s the highest level of growth since the 1970s, which is that period again. 

“As if this were not already bad news for inflation, we now have to contend with soaring food costs,” he said. 

Food is one of the largest components of household expenses in emerging economies. Heck, it’s a big expense in advanced economies as well. As food prices rise, capital will be diverted into essentials. Emerging markets are about 60% of global GDP, estimates the economist. 

As inflation kills emerging market consumption, it will drag global trade. “Clouds are forming over global economic growth forecasts for 2022,” he said. 

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  • Paul 3 years ago

    And there it is. It’s different this time of course. For all the real estate bulls that continuously say Canada will be untouched. Hold onto your investment properties. It’s about to get messy.

  • Tom Wolfe 3 years ago

    ‘The bank sees some signs of stagflation beginning to appear in the economy.’

    Well duh.

    It takes 30 years to save for a downpayment against a house (home) (basic shelter) that requires a supporting income of 4 to 10 times the average Canadians annual salary? ????. Thank goodness ‘The bank sees some signs of stagflation beginning to appear in the economy.’


    We are doomed.

  • Kolf 3 years ago

    Stagflation means currency devaluation, when everyone thinks a currency will devalue what do they do? They invest in real assets that will be needed no matter what. Real estate is a good example, another is essential services like grocery store and utilities company.

    I dont expect real estate prices to go down anytime soon.

    • neo 3 years ago


      Except interest rates HAVE to increase in this environment. Remember what Volcker did in the early 80’s and what happened to housing prices? Not saying we are going to 20% but even 3-5% interest rates in this current environment with cause at minimum of sharp drop in housing prices and at worse a crash.

    • WS 3 years ago

      Kolf, wishful thinking on your part.
      The inverse relationship of interest rates and the RE bubble is clearly established.
      When rates rise to combat inflation which has been ignored for too long, the bubble will burst.
      The bubble would eventually burst just the same, but stagflation will make the bursting much more spectacular

    • Alex 3 years ago

      Stagflation is more than just currency devaluation, it also implies a lack of growth and/or productivity within the economy.

      It is highly unlikely we will see real estate price appreciation in an economic environment of stagflation, especially considering the real estate industry now represents a ridiculously large component of our GDP

      If yields end up catching up to inflation, real estate in such an environment will be dead in the water.

    • Sn 3 years ago

      You’re assumption is that population is sitting on savings that are to be deployed. High inflation takes care of savings, if any savers are left in Canada given the explicit war on savers this country has waged over the last 10 years.

      Currency devaluation response is interest rate increase. What do you think happens when record leverage in the real estate market meets rate increases and high inflation? It ain’t the 70s anymore, particularly because unions have disappeared which used to put pressure on employers for wages.

  • Dar Robbins 3 years ago

    To write that “inflation is the result of rising productivity and a tight job market” is ignorant BS.
    This is the biggest lie in economics.

    Inflation is the result of one thing only: the expansion of the money supply causing purchasing power of the currency to decrease making things (necessities) more expensive.

    • david 3 years ago

      You are right, rise in productivity does not go hand in hand with inflation

      • Terry 3 years ago

        That’s incorrect, because falling productivity and high unemployment isn’t inflation, it’s stagflation. The author was distinguishing between the two, not whether it’s possible for inflation to occur with falling productivity with no concern for output.

    • Terry 3 years ago

      Show us one case in history where healthy inflation was created with falling productivity and high unemployment? It doesn’t happen, because that’s by definition stagflation.

      You’re not arguing with the author, you’re arguing with the dictionary.

  • Dar Robbins 3 years ago

    Here’s another hoodwink:
    “Like in the 1970s, it (stagflation) starting with a shock to energy prices.
    That’s only half the story.
    The other half, conveniently omitted is the collapsing purchasing power of US dollar caused by massive debt issuance to finance the US deficit when Nixon took the USD off the gold standard on August 15, 1971.

    • Terry 3 years ago

      That’s not “half the story,” the print was created to address the deflationary pressures that were caused by the energy shock. The point was made, you boomers just need to have the final word so you can feel like relevant. Go talk to your grandkids, cause no one cares about when you wore an onion on your belt

  • Lisa D 3 years ago

    Hey Terry,
    Don’t discredit ppl because they aren’t your age.
    Not polite or productive.

  • fred 3 years ago

    Solution from Bank of Canada

    Print more money create inflation and show growth.

  • Tim 3 years ago

    Enormous breaks within the worldwide lodging bubble have as of now shaped in China, the disease hazard to worldwide lodging venture opinion is greatly tall right now, and we may be simple weeks absent from the beginning of the long-fabled surge to the exits. Get your popcorn prepared.

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