Global Stagflation and its Looming Impact on the Direct Selling Industry
After inflation and deflation have taken enough toll on us in the past years, stagflation is the new sword above the global economy that economists are anxious about. After 1970, since it last occurred, the word “stagflation” was unheard of. But with COVID-19 and the Russian invasion of Ukraine, the global economy is on the brink of higher prices and lower economic growth. An iconic picture where the Americans lined up on every street to fill high-priced, limited quantity gasoline is again doing its round on the internet and the Google searches for the word “Stagflation” have hit the highest level since 2008.
Well, what is stagflation?
To quote the Wall Street Journal, “Stagflation is a toxic cocktail of stagnating growth and rising prices”. It is an economic condition where the growth is slow, the unemployment rate is high and prices are rising. Precisely, there is inflation on one side and stagnant growth on the other side, creating a devastating effect on the economy. The main reasons that cause stagflation according to economists are first, supply shocks — which reduce the economy’s capacity to generate or manufacture goods and services at a particular price, and second, fiscal and monetary policies.
From a layman’s point of view, stagflation is when you earn less but spend more on every necessary thing such as food, medicine, and other consumer products. So when a consumer has less money and they decide to slow down their spending, it will affect corporate revenue ultimately impacting the overall economy.
How does stagflation differ from inflation?
Inflation is the upsurge in the cost of various goods and services causing a currency to lose its purchase power. A currency is said to be losing its value when the prices rise and you will be able to buy very less goods and services with the said currency. This would ultimately lead to an increased cost of living especially for the general public leading to a lag in the economy’s growth. To put it in simpler words, you cannot purchase the same amount of things today for $100 which you used to buy last year and in the previous years. The cost of living, clothing, food, and every other necessity is shooting up year by year with or without our knowledge.
Stagflation is, as mentioned above, the cost of living increasing invariably but the common public does not have enough income to meet the price rise and higher interest rates. Despite having a robust labor market and a large oil and gas sector, the United States is at risk of stagflation. It is expected to loom in by the end of 2022 showing its true colors by 2023. The pandemic, the Ukraine war, supply chain hiccups, and varying tax policies are the general reasons that seem to be causing unemployment and inflation effects.
Stagflation and direct selling
Economic experts agree that the United States and Eurozone economies are facing high risks of stagflation. Consumer price inflation growth in the US reached 8.6% in May 2022 which was the highest in 40 years. The US consumer sentiment index, the economic indicator measuring consumer optimism about their finances and the state of the economy is lower than it was during the beginning of COVID-19.
This is where the direct selling industry needs to be wary of because ultimately when there’s no money to spend, there’s definitely going to be a recede in people spending on consumer goods that the direct selling industry mostly deals with. But having said that, the WFDSA 2021 global statistics reports show that from a steep fall of -4.2% during the beginning of the pandemic, the industry has sustained and survived multiple lockdowns and various calamities and yet reached a high of 1.5% growth in 2021.
With the pandemic and various physical and mental conditions that came with it, people have been investing in health and wellness and the generation’s health consciousness is only set to improve as Statista’s report foresees an estimated growth of $6 trillion by 2025 for the global health and wellness market. The WFDSA report also portrays that 35% of the retail global direct sales are generated from the health and wellness sector and 25% from the cosmetics and personal care sector. This maps out how people have set their priorities straight despite the financial crunch that pandemic and other calamities have posed in the past years.
Unlike inflation, stagflation is a short-term phenomenon that will restore the economy and unemployment rates would gradually come down in the span of a year. These economic uncertainties would encourage people to look at the alternate source of income and direct selling has its doors opened with a myriad of opportunities for people of all age groups and backgrounds without a lump-sum investment.
Throughout every economic downturn, the direct selling industry has always been able to keep up its pace overcoming various risks and vulnerabilities. With the hybrid work model and digital transformation changing the phase of the industry, it is the most welcoming sector irrespective of all age groups.
The global economy is always wavering. With each high and low tide, industries either flourish or diminish. The direct selling industry has strived through every financial tsunami over the years. When the world is in dismay and preparing itself to cope with stagflation, the direct selling sector is vigilant but dauntless!
