The Threat of Global Stagflation 2022
The fact that many countries in the world must take into account today is higher inflation and slower economic growth. Now the world is faced with a new condition of global economic threat, namely “Stagflation” which is already in sight. Stagflation is the rate at which inflation exceeds expectations, while forecasts for growth are rapidly declining. In another description, stagflation is described as a characteristic in which the price of goods continues to be high while income does not increase. Stagflation reflects a time when no matter how hard you try to make money, the money you collect is not sufficient to meet the exchange rate for goods, meanwhile there is no economic value business that can be done because of the scarcity of materials, which will further lead to an increase in the number of unemployed. Stagflation is also defined as a condition of unemployment accompanied by inflation. Stagflation presents a difficult choice for policy makers, which is the right way, tactics, and timing. Until now, the price of basic needs in the market has continued to rise, while the exchange rate is still weak, while jobs are becoming increasingly difficult, salaries and wages have not increased, while basic needs continue to skyrocket and the unemployment rate is rising. Macleod, a British politician who first introduced the term stagflation in the economic world. Around the 1060s, Macleod in a speech to the British parliament, described the conditions of inflation and stagnation that hit England as a situation called stagflation. Stagflation first appeared in 1965 in England. Five years later the US experienced it. It all started with the increase in the price of fuel oil, as is happening now. In Indonesia, stagflation occurred in 1998. The high price of goods and the amount of money circulating in the community caused the value of money to decline. Globally, at that time the exchange rate of the rupiah against the US dollar also fell.
Strategies to Prevent Stagflation in Indonesia
What is most needed at this time is how to find the right and proper way out of the threat of stagflation. Ryan Kiryanto in his writings Beware of Global Stagflation Pressure, said that various countries have carried out many treatments to relieve stagflation which is increasingly threatening. Many opinions predict that stagflation will enter Indonesia through China. This is due to the high intensity of Indonesia’s exports to that country. It is believed that this economic relationship will trigger a chain effect, so that Indonesia is required to prepare itself as well.
For example, in China, the price of oil has touched its highest price in three years, which is around US$80 per barrel. This incident illustrates the energy crisis in China which also threatens the economic growth of countries that have cooperation with it.
Faced with the current reality, the Indonesian minister of finance explained two ways to deal with the threat of stagflation, namely the first to control inflation first (maintain stability). This policy can be carried out by the central bank through monetary normalization. This is usually done in the form of raising the benchmark interest rate. In addition, also by reducing liquidity in the market. If you use this first method, the economy will slow down which will then lead to a recession. The second way is to maintain economic growth first, this will result in high inflation, which is still very difficult for the community. Both ways out that exist today are equally dangerous, although it is possible and must be done it is still very bitter to go through.