The central banks’ dilemma: inflation, stagflation, and the cryptocurrency response in today’s economy

Quick Take

• Due to the economy being built on credit, both growth, and expansion are necessities. As such, central banks’ biggest fear is deflation and stagflation. Take the U.K. as an example — though this can be attributed to many Western countries.

Three metrics that contribute to stagflation;

1. Persistent high inflation: Inflation has been higher than the CPI goal of 2% for over a year now, and the biggest worry for central banks is entrenched inflation. For example, in the U.K., CPI Inflation has been double digits for almost a year — while core inflation has been as high as 6% for over a year.
2. Stagnant demand in a country’s economy: U.K. real GDP is still below Q4 2019.
3. High unemployment: We aren’t here yet, but the U.K. unemployment rate did spike from 3.7% to 3.8%. As interest rates continue to rise and stay elevated, this will further pressure the labor market.

Stagflation was last seen in the 1970s, and consumer good prices tend to rise — while asset prices tend to deflate. Central banks are getting caught between a rock and a hard place.

CryptoSlate previously covered an insight into asset prices between the 1970s and the 2020s.

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