stagflation

Stagflation

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

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stagflation

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

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Stagflation

High inflation in a period of low GDP growth. Many economists thought that this was impossible, but the oil embargo of the 1970s contributed to a staggering increase in oil and food prices, which fueled inflation and hindered economic growth. Stagflation is difficult to control, as focusing on controlling inflation could hurt growth even further, while trying to ease credit to encourage growth could intensify inflation. The term is a portmanteau of stagnation and inflation.

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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%.

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stagflation

A slang expression for a period of stagnation and inflation.

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Stagflation

What Does Stagflation Mean?

A condition in the overall economy that is characterized by slow economic growth and relatively high unemployment—a time of stagnation—accompanied by a rise in prices (inflation).

Investopedia explains Stagflation

Stagflation occurs when economic growth declines while prices keep rising. This economic malady occurred during the 1970s, when world oil prices rose dramatically, fueling extreme inflation that became a hindrance to economic growth.

Related Terms:
• Business Cycle
• Consumer Price Index—CPI
• Deflation
• Fiscal Policy
• Inflation