What is stagflation?

We ought to fear the "Spectre of stagflation", says the <em>FT</em>.

The Financial Times' lead story today highlights the "spectre of stagflation", the economic phenomenon where inflation spikes even as growth stays flat.

David Keohane and Claire Jones write:

Inflation expectations, as measured by the difference between nominal and inflation-linked bond yields, ticked up to near 3.3 per cent on Tuesday, levels not seen since September 2008.

Investor fears that the UK could be simultaneously hit by stagnant growth and high inflation, as experienced in the 1970s, were exacerbated by poor economic data pointing to the probability of another economic contraction in the first quarter of this year.

Stagflation—a portmanteau of "stagnation" and "inflation", if that's not clear—is one of the major fears in orthodox economics, because the two phenomena are usually viewed as a trade-off. Central bankers put up with higher inflation expectations to boost low growth, and vice versa; if growth is low and inflation high, those policy levers lose their effectiveness. Ultimately, the fear is that stagflation will be locked in in the long term.

The last serious stretch of stagflation was in the 1970s, and is largely credited with leading to the current inflation-averse international monetary regime. In Britain and the US, inflation expectations had ticked steadily upwards, thanks, in part, to the over-effectiveness of centralised bargaining over pay. The common story told is that, as unions began to demand above-inflation pay rises, they were granted frequently enough that the demands themselves increased the rate of inflation. The annual rate of change in RPI peaked in August 1975 at an astonishing 26.9 per cent.

This time round, inflation expectations are being raised by the actions of the Bank of England—albeit to nowhere near the same extent. Nonetheless, the Bank, having expressed a belief that inflation oughtn't come down until after the economy picks up, is responsible for the fact that expectations have hit the pre-crisis peak.

The fears of stagflation are currently just that—fear hasn't turned into reality yet—but, as with so many economic phenomena, it has a nasty tendency to become a self-fulfilling prophecy. Hopefully, the underlying pattern of growth will turn from stagnation eventually, before inflation expectations get calcified at 3+ per cent; but if it doesn't, and the Bank of England is forced to keep inflation high in the face of the continued corrugated economy, we could see the current situation become the new normal.

Inflation. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The most British thing happened when this hassled Piccadilly line worker had had enough

"I try so hard to help you Soph, so hard."

Pity the poor Piccadilly Line. Or rather, pity the poor person who runs its social media account. With the London Underground line running with delays since, well, what seems like forever, the soul behind Transport for London's official @piccadillyline account has been getting it in the neck from all quarters.

Lucky, then, that the faceless figure manning the handle seems to be a hardy and patient sort, responding calmly to tweet upon tweet bemoaning the slow trains.

But everyone has their limit, and last night, fair @piccadillyline seemed to hit theirs, asking Twitter users frustrated about the line to stop swearing at them in tones that brought a single, glittering tear to this mole's eye.

"I do my best as do the others here," our mystery hero pleaded. "We all truly sympathise with people travelling and do the best we can to help them, shouting and swearing at us does nothing to help us helping you."

After another exchange with the angry commuter, @piccadillyline eventually gave up. Their tweet could melt the coldest heart: "Okay, sorry if your tweet mixed up, I won't bother for the rest of my shift. I try so hard to help you Soph, so hard."

Being a mole, one has a natural affinity with those who labour underground, and I was saddened to see poor @piccadillyline reduced to such lows especially so close to Christmas. Luckily, some kind Londoners came to their defence, checking in on the anonymous worker and offering comfort and tea.

And shortly after, all seemed to be well again:

I'm a mole, innit.