The Day – World economy can avoid 1970s rerun, albeit with some hurt

The world economy has a decent shot at escaping a full re-run of 1970s-style stagflation — and that’s about as far as the good news goes.

A historic surge in commodity prices after Russia’s invasion of Ukraine, coming on top of already-high pandemic inflation, has gotten investors and economists searching for parallels with the energy shocks of four decades ago and the prolonged slowdowns that followed.

They’re right to worry, says Maurice Obstfeld, a former chief economist at the International Monetary Fund.

“The more protracted this period of continuing shocks,” he said, the more likely it becomes that economies suffer “something like the 1970s experience.”

Among developed economies, the risk is perhaps greatest in the euro-area. The European Central Bank unexpectedly said last Thursday that it will accelerate its wind down of monetary stimulus with inflation already running almost three times its target.

“This is the…