Sagflation

Moody's is not optimistic that this ongoing crisis can be resolved within the existing relationships between lenders and borrowers, and we believe that some form of subsidized solution may evolve. In this situation, a reversal in interest rates and renewed inflation without strong economic growth (a reprise of the sagflation of the 1970s) might well precipitate another crisis, particularly for supranational lending agencies.

Source: wiktionary

"While the Fed will not yet be forced to raise rates to arrest rising inflation, it will be handcuffed from cutting rates to stimulate growth," he said, in a note to clients. "This precursor stage to stagflation deserves its own name; let's call it ‘sagflation.’"

Source: wiktionary

That three-decade old specter of stagflation is unlikely to return, but a less dramatic version that some analysts have coined "sagflation" or "stagflation-lite" may be around the corner.

Source: wiktionary

While it is true that inflation and interest rate fears allow bears to dominate, long-term investors should not give undue weightage to the problem. Equity investors will have to keep a tab on inflation levels and interest rates only up to a point where we don’t reach stagflation or hyperinflation. A sagflation situation will be a damaging condition for the equity markets. Per se, only inflationary levels should not bother long-term equity investors. In fact, an inflationary situation can be good for several sectors and companies. Banks and financials may see improvement in the margins. Commodity players tend to thrive and make record profits in an inflationary environment.

Source: wiktionary