Stagflation is a situation when an economy faces low or no growth, coupled by high inflation.

The Singapore government have been constantly highlighting that Singapore faces low growth or no growth in 2012 and will be followed by inflation. Stagflation seems unavoidable in 2012.

The last time the world economy saw stagflation was in 1979. The solution was to drastically raise interest rate. This was proven effective in 1979 and the US economy recovered in 1983.

One has to wonder if any central government will want to raise interest because bond prices have an inverse relationship with interest. So if interest rise, more would want to sell their bonds to take advantage of the high interest rates. 

However, are Singaporeans ready for this possible raise in interest rates? Especially in the housing market.


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