

Ask HN: Why stagflaction happens? - speeder

I keep hearing as one of the arguments against Bitcoin, or against the Japanese of the last years, that deflaction make people hoard money and cause the economy to get stuck as noone buys anything.<p>Thus, I also hear, that a constant level of low inflaction, makes people want to spend their money, and thus spur economic activity, and maybe some growth.<p>I live in Brazil, and in the last two years, I heard a lot of people complaining of inflaction and no salary rise... At first I thought it was some sort of psychologial thing or cronical complaining...<p>But in 2012 we had only 0.9% of GDP growth, and 5.8% of inflaction, and currently our GDP growth is not getting better (in fact it retracted in february) while inflaction is rising (6.3%), in fact, even more interestingly is looking beyond those numbers, and looking at the numbers that matter for most people, that is the inflaction of food prices, something that everyone must buy, those according to IPCA are 8.8%, but we can highlight some classes of basic products, like vegetables, that had a 46.67% increase in the last quarter.<p>Yet, I kept hearing in the last two years from people in the commerce sector (not services, those were not complaining much) that they were having terrible sales, only slightly better than 2009 (the height of the great recession here), the supermarket association for example that in the 12 months period leading to february they had a 4% real contraction in gross income.<p>If Brazil is having such problems with inflaction (to the point last week political magazines were all running cover stories on the price of tomato, that rose 70.45% on this quarter alone), why the GDP growth is struggling?<p>We have historic low unemployment and inflaction, why people are not spending money? Why commerce people (not only retailers, but I also spoke with B2B sellers) are complaining so much that they are selling less than the last years? (excepting 2009)
======
argonaut
I don't want to be pedantic, but this is a question that probably not even
most professional economists will be able to give you a simple (or even
accurate) answer for. This is not because mainstream economics is
intellectually bankrupt or anything, but it's because economics is
_extraordinarily complex_. A million variables affect the economy of any
nation. Similarly, inflation and deflation do not exist in a vacuum; the
currency is not the only variable influencing inflation; thousands of other
variables can affect inflation; ditto for GDP.

 _Inflation does not directly lead to or cause higher GDP, unlike what you
seem to imply._ But it's generally agreed that moderate inflation is necessary
and unavoidable for growth, and is preferable to the consequence of tightening
monetary policy, which is lower GDP growth.

The textbook example for one (out of hundreds) of the possible reasons for
stagflation is a rise in commodity prices. For example, the US experienced a
long period of stagflation in the 1970s because oil prices skyrocketed - not
because of inflation, but because several Middle Eastern nations
stopped/curtailed oil shipments. This is called a "supply shock" in economics,
and it causes inflation by increasing prices, while decreasing GDP by making
it more expensive to buy the resources (e.g. oil) necessary for production.
Another "textbook" reason (again, I have no idea whether these actually apply
to Brazil) would be a loose monetary policy (high inflation), coupled by heavy
government regulation (low GDP).

