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


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.


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


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%.


a situation of depressed levels of real output combined with increases in prices (INFLATION). Stagflation is caused by the dual forces of:
  2. rising FACTOR INPUT costs (see COST-PUSH INFLATION).

Stagflation was a particular problem in many countries during the 1970s and early 1980s as a result of the combined effect of cost-push inflationary pressures emanating from the oil price increases of 1973 and 1979 and the deflationary consequences of reduced real purchasing power in the oil-consuming countries that accompanied these increases. This was exacerbated by the development of higher inflationary expectations.

Orthodox FISCAL POLICY and MONETARY POLICY, accustomed to an apparent trade-off between inflation and employment/output (see the PHILLIPS CURVE), were found wanting in the new situation, and many countries turned to alternative approaches, for example, MONETARISM and SUPPLY-SIDE ECONOMICS.


A slang expression for a period of stagnation and inflation.

References in periodicals archive ?
Stagflation occurs when the economy isn't growing but prices are.
It was stagflation with a vengeance, a motionless--indeed, shrinking--economy in the context of intolerable increases in prices.
This is possibly the first time that an official has openly admitted that the country is passing through a stagflation.
Where stagflation has taken root in an economy, companies see their profits shrinking despite all efforts to counter this.
We are not getting the full effect of these negative indicators in the headline inflation, which suggests that there are mitigating factors because it reflects that the economy could be slowing down, it leaves us with a worse situation of stagflation, and we must get out of this," she stressed.
We are also positive on emerging market equities in markets such as China, Thailand and Singapore, as we expect Europe to choose a stagflation plan and valuations are currently favorable," commented Launny Steffens, Founder of Spring Mountain Capital and Co-Managing Member of its general partner.
Excess monetary stimulus caused stagflation in the U.
It is also widely recognized that this era of prosperity really ended not in 1980, but with the stagflation of the 1970s.
Morgan's emphasis on the effects of stagflation on budget discipline captures an important element of the story but leaves a puzzle.
When carrying capacity is exceeded, the stagflation phase of a secular cycle begins.
He said Iran's low growth rate and high inflation has created the phenomenon of stagflation, a condition that occurs when inflation and a stagnant economy merge.
As other countries in the region including Brazil and Chile recover from a recession, Venezuela is lagging behind and "firmly in stagflation territory" with rising prices and a shrinking gross domestic product, Esteruelas said.