Stag-deflation

This new term is yet another consequence of the interesting times we’re living through. Its first known use was by Nouriel Roubini, a professor of economics at New York University, writing in Forbes Magazine on 29 October.

It’s obviously enough a combination of stagflation, persistent high inflation combined with stagnant demand, with deflation, which is being discussed as a likely outcome of the current global financial turmoil. Deflation is thought a greater evil than inflation because it leads to people hoarding money rather than spending it because of expectations that prices will fall. Stag-deflation combines stagnant deflation with recession, leading to a state in which the economy stalls and unemployment rises rapidly, while commodity and goods prices continue to fall.

The term has received much attention, as much for its intriguing neologistic flavour as for the recipe for gloom that it foretells.

People who own things like houses and publicly traded financial instruments and so forth, they’re walking around looking as deflated as the value of their acquisitions while the world slouches toward depression or recession or stag-deflation or whatever odd neologism they coin for the impending global economic trainwreck.

See Magazine, Canada, 19 Nov 2008

For now, the prospects of the euro being the next victim of a rate cut have already turned that currency back towards the low road, and the growing odds of some kind of stag-deflation in the US and Europe spreading to Asia have commodities speculators selling into rallies.

International Business Times, 30 Oct 2008