Here is all that we need to know about stagflation and its effects on Technology Industry.
What is stagflation?
Stagnation and inflation, these two terms join to form the word 'stagflation.' The word stagflation describes when the global economy collapses when prices are surging high while the economic growth keeps taking a downturn—this lack of economic growth results in a higher rate of unemployment. Economic stagflation is a period of slow economic growth and relatively high unemployment. Stagnant economies, inflation, and high unemployment tend to happen simultaneously. Stagflation can also be described as the period of inflation combined with a decline in the gross domestic product, i.e., GDP.
When was stagflation first recognized?
Stagflation was first observed in the 1960s. Later, during the 1970s, when countries with well-developed economies experienced a sudden increase in inflation and high unemployment rate due to the Oil Shock, the countries adopted the economic stagnation process to describe it. Until this time, stagnation was believed to be an impossible economic theory. It was only then that the prevailing economic theory of stagflation became the nightmare it is today!
Causes of Stagflation
Globally, economists can distinguish two leading causes of stagflation: supply-side shock, a sudden spike in universally obtained commodity or supply chain disruptions, and poor economic policies, including low interest in economic conditions. Stagflation occurs when supply is constrained while money supply expands. Poor economic policies and supply-side shock occur side by side. Stagflation can be caused by inappropriate monetary or fiscal policy.
Difference between Inflation and Stagflation
Inflation is an increase in the rates of goods or services; however, stagflation is a surge in consumer prices with low and negative economic growth and rising unemployment.
Stagflation lasts longer and is always a more formidable challenge than inflation for officials to solve.
Stagflation is a nightmare you never want to live through. It is of grave importance for companies or new startups to know how to survive through the era of stagnant economies and rising inflation. Companies and businesses must prepare themselves. Furthermore, as we speak of the Technology industry, Outsourcing to software teams is the best solution to help businesses sustain themselves in these challenging times.
Could Outsourcing be the solution to stagflation?
Companies should look for ways to cut their expenses to counterbalance increasing costs. In financial crises, why spend hefty amounts on salaries, overhead costs, and equipment when companies can outsource to the best IT professionals and get everything sorted.
In the period of economic stagflation, there is an increase in offshore Outsourcing as it results in cost savings. Moreover, due to stagflation, many skilled job seekers in the local market are willing to work at a lower cost.
As prices continue to spur, the only important thing is not to incur unnecessary and needless costs on your business. The aim is to cut that redundant cost during stagflation to reduce the impact on your profit margins. Hence, Outsourcing is the key to doing so. We at Outsourcers can help your company by providing our services within your budget to combat rising inflation and stagnant economies.