Mark Lister

G'day team, hope you're all well.

Today I wanted to talk about stagflation because that has been back in the headlines over the last few weeks as we've got this oil price shock that threatens to push inflation back up and at the same time it could take a big chunk out of economic activity.

Now stagflation is a term that they use to describe a particular set of economic conditions.

Low growth or

high unemployment, but also high inflation.

It is a highly undesirable combination.

We've seen our Reserve Bank here in New Zealand suggest that our inflation rate could hit 4.2% in the June quarter.

That's more than double the 2% midpoint of its target range.

while the IMF, the International Monetary Fund, recently released a scenario that sees global inflation at 5.4%, and an even worse scenario that sees it above 6%.

So those are just potential outcomes.

They're not predictions from the IMF, but they would go hand-in-hand with a fairly bleak economic outlook.

now when we think about stagflation the most well-known period where we saw that was the 1970s and that was a decade that was terrible for investment returns u.s shares corporate bonds and real estate all posted respectable but below average annual gains of between five and seven percent over those ten years so five to seven percent per annum over that decade through the 1970s

None of those kept pace with rampant inflation.

Inflation averaged 7.4% over that whole decade.

So in real terms, inflation-adjusted terms, investors actually went backwards and made no money.

In fact, they lost money.

They lost purchasing power.

It was even worse here in New Zealand.

Our inflation in the 1970s averaged 12% per annum.

12% for the whole decade if you go point to point from the end of 69 to the end of 79.