Stagflation

"At the end of the third century A.D., Roman Emperor Diocletian struggled to contain an inflation that raised prices by more than 300 percent a year! At the end of the twentieth century, Brazil's president, Fernando Henrique Cardoso, struggled to contain inflation that hit a rate of 40% per month or 5600% a year!"

Hard times for Asian politicians and policy makers. The staggering double digit growth rate is now a thing of the past. Now they are worried about inflation combined with slowing growth- stagflation. The best time to learn another concept in economics though. Inflation can result from either an increase in the aggregate demand or a decrease in aggregate supply. What most economies in Asia are facing is a combination of both. In the recent years, the growth story has created wealth and have given people with a double edged sword. They are definitely spending more than last five years back. This is even true amongst the place like Asia where 2/3 of the entire worlds poverty exist. The social impacts of this are seen in many of our lives, including higher crime rate, rich poor divide etc. But the economic impacts are even more striking on our face.
Global food supply shortage, high crude oil prices and fear of recession in U.S economy and the sad story continues. High crude prices and Global food supply takes the other edge of the sword which is the lessing aggregate supply. Clearly economies are pulled by both these factors. High crude prices are attributed to the factors like increase in speculation. There are websites which talks about peak oil in big time. But this claim fails to answer the soaring prices of coal, commodities. Definitely there is much more to this story than just speculation. Remember, if it was just speculation then there is also a forward sell equivalent to the forward buy. And there should be relative increase in the supply of oil. Recently Saudi Arabia increased its production, but still the prices increased. Genuinely there is a demand surge in Asian countries. China is trying to make a coal free zone for the Olympics, which means replacing the entire system with diesel or alternatives. So we can reject the idea of speculation for soaring oil prices. It might be a reason but fails to explain in its full.
Lets address the fear of recession in U.S. . Of course there are signs of slowing economy. The labor market was one figure which was falling in the recent months. But can we say this will be a hint to the recession impending? Basically, according to Philips curve which gives the relationship between the inflation and unemployment holding constant the expected inflation rate, the natural unemployment rate, says there is a negative relationship between the two variables.
There is a rise in inflation rate coupled with slowing growth which has resulted in increasing unemployment rate. " Cash is King this year"