In a post on social media platform X on April 27, he warned about stagflation in the US and said that it is a possibility that India needs to consider. “The reason for it is simple – the fiscal is too loose and, in compensation, monetary is too tight. Until the former corrects, the latter cannot,” he wrote.
US inflation witnessed its biggest increase in a year as it accelerated to 3.4 percent in the January to March period, up from 1.8 percent in the previous quarter. (Photo: Reuters)
Sanjeev Sanyal, a member of the Economic Advisory Council (EAC) to the Prime Minister (EAC-PM), said stagflation in the US is not a certainty, but a possibility that India needs to consider.
In a post on social media platform X (formerly Twitter) on April 27, he wrote, “The reason for it is simple – the fiscal is too loose and, in compensation, monetary is too tight. Until the former corrects, the latter cannot.”
Stagflation is an economic condition, which combines slow economic growth, high inflation and a high rate of unemployment.
US inflation witnessed its biggest increase in a year as it accelerated to 3.4 percent in the January to March period, up from 1.8 percent in the previous quarter.
The US economy slowed sharply to a 1.6 percent annual pace in the last quarter burdened with high interest rates. However, consumers kept spending at a steady pace to offset the impact. The recent data from the US Commerce Department stated that the country’s GDP decelerated in the January to March quarter from its 3.4 percent growth rate in the final three months of 2023.
Consumer spending also increased by 2.5 percent, maintaining a strong pace, even though it was down from the 3 percent in the previous two quarters. Americans spending on services rose 4 percent, the fastest such pace since mid-2021.
These are likely determining factors for traders to expect the first rate cut by the US Federal Reserve to be pushed to December, a Bloomberg report stated. Before the recent US data was released, the Street was estimating the American Central Bank to begin cutting interest rates in September.
Sanyal, in his post, shared a Bloomberg article titled ‘The US economy may be barrelling towards stagflation, an outcome worse than recession’. The report summarised that the slower-than-expected growth, higher-than-expected inflation, and hotter-than-expected increase in consumer prices, put serious limits on the US Fed’s ability to take action. The central bank has made it clear that inflation needs to slow down for any rate cuts to occur.
The Bloomberg report stated that sputtering growth and higher prices are also key ingredients for stagflation, which can be harder to fight than a recession as the US Fed’s hands are tied due to the above-mentioned factors.
“A stagflation situation in the US in 2025 would have global consequences that will complicate macro-management for the rest of us,” Sanyal’s post on X stated.
