Stagflation is a macroeconomic condition in which inflation remains elevated while economic growth is weak, and unemployment may rise. The term combines stagnation and inflation to describe this unusual mix of price pressures and stagnant output.
It is often associated with supply shocks, such as sharp increases in energy prices, that push up production costs while demand remains sluggish. The combination is challenging because traditional policy tools to reduce inflation (tightening monetary policy) can further dampen growth, whereas stimulating demand can raise inflation.
Analysts use stagflation to frame discussions of macroeconomic risk, policy trade-offs, and the behavior of inflation expectations. The concept is linked to debates about the Phillips curve, which describes an inverse relationship between inflation and unemployment in the short run, though this relationship proved uncertain in stagflation periods.
During stagflationary episodes, observers watch a set of indicators—price levels, real gross domestic product, and unemployment—to gauge whether inflation is persisting alongside weak growth.
In the 1970s, the United States faced stagflation as inflation rose while real GDP growth slowed and unemployment increased.
inflation · unemployment · recession · Phillips curve · cost-push inflation · monetary policy · real GDP