Stagflation

Stagflation

A period of slow economic growth and high unemployment with rising prices (inflation).

---

stagflation

An economic condition that is characterized by slow growth, rapidly rising consumer prices, and relatively high unemployment.

---

Stagflation. Stagflation results when inflation increases significantly despite a slowdown in the economy and shrinking demand for products and services that results from rising unemployment and low consumer confidence.

This combination of stagnation and inflation has a crippling effect on economic and political stability. As the central bank strives to stimulate the economy by increasing liquidity and cutting interest rates, it risks fueling inflation, which acts as a drag growth.

At the same time, focusing on controlling inflation rather than easing credit may increase the risk of sending the economy into an extended recession.

A vivid example in recent US history began during the OPEC crisis of 1973 and 1974 when oil and food prices soared, and unemployment grew, while the economy contracted and the stock market lost value. In 1980, the inflation rate was 13.9% rather than the long-term average of 3%, and the prime rate reached 21.5%.