Evaluate the claim made in this article that if “inflationary expectations” become strongly “entrenched” an economy will experience “a persistent output gap.”
The indication is that inflationary expectations have become entrenched and strongly footed in world markets. As a result, the risk of global stagflation has become significant. A drawn-out inflationary process always precedes stagflation, anathema to the so-called Phillips Curve. Following the attritional effect of inflation, the economy starts to grow below its potential. It experiences a persistent output gap, rising unemployment, and increasingly entrenched inflationary expectations.