The term “Stagflated Economy” is an economic definition for economies which suffer from Stagnation and Inflation at the same time.
Increasing interest rates to “Stagflated” economy is most likely dangerous. It might be effective in Large & “Governed Economy” countries and for a short term only. However in “Stagflated” economies, Rules are turning upside down, where there is a recession with inflation which uplifts the economic burdens on all formal economy parties, However it is not the case for informal and parallel economies parties. The economy turns to be a form of isolated circles and islands.
The fiscal policy clashes the monetary policy, the 1st is pushing for growth and maximizing incomes to address the budget deficiency and public debts, the second is pushing to holdback inflation rates and excess liquidity.
And here comes the critical role of “Economic Governance”.
Governments should have financial supervision and control for the majority % of the running economy and an estimated figures for corrupted and money laundering economy, which are the main source for inflation and economic flaws.
Providing Economic Justice and Governance are the way out of any “Stagflated” economy and not anything else. Even though, the devaluation of the local currency has some effects on inflation, but it is not the main issue.
This devaluation could be swallowed and faded rapidly when we go for a serious steps for “Economic Governance” and “Economic Justice”
Hisham Farouk, MSc, is the CEO of Greenergy for renewable energy solutions