80% of economists see 'stagflation' as a long-term risk. What it is and how to prepare for it | | | WED, JUN 22, 2022 | | | Stagflation is the next big risk to the U.S. economy.
In fact, stagflation is "by far and away the most popular description of what the economic backdrop will be in the next 12 months," according to a report by Bank of America. To that point, the combination of inflation and weakening growth could trap the global economy in a years-long slump, some economists warn.
Stagflation is basically a mash-up term combining the words stagnation and inflation. It describes an economy that is malfunctioning, in which prices keep soaring while economic growth — the rate of increase in the output of goods and services — slumps. The lack of economic growth over time can lead to higher unemployment.
Under stagflation, households and businesses begin to grow concerned that inflation will continue to rise over the long haul, which becomes a self-fulfilling prophecy, causing them to adjust their economic behavior in a way that ensures inflation will continue.
It's something his clients are concerned about and they are therefore seeking some guidance, certified financial planner Ted Jenkin told CNBC's Lorie Konish.
"I think it's inevitable that we're going to hit a recession. Whether this is a mild recession or we go into stagflation will be the big question," said Jenkin, CEO of oXYGen Financial.
So, what is Jenkin telling his concerned clients?
Now is the right time to revisit those personal financial plans, he said.
"This is the absolute time for people to batten down the hatches and beef up the foundation of their financial house," Jenkin said.
Try to aim for at least six months' worth of emergency expenses in case a downturn does happen, he said. Also make sure you have prepared a recent budget to see if there are places where you can cut back.
Additionally, take a look at any adjustable-rate debt you may have — credit cards, mortgages, student loans — and see if you can pare those balances down or refinance them. Now that interest rates are poised to go up, those balances will become more expensive.
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