stagflation


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Stagflation

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

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.

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%.

stagflation

a situation of depressed levels of real output combined with increases in prices (INFLATION). Stagflation is caused by the dual forces of:
  1. a deficiency in AGGREGATE DEMAND relative to POTENTIAL GROSS NATIONAL PRODUCT (see DEFLATIONARY GAP); and
  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.

stagflation

A slang expression for a period of stagnation and inflation.

References in periodicals archive ?
The amount of time spent in recession in the 18 years following 1982 was one-fifth that lost to recessions in the 13 years of stagflation.
Where stagflation has taken root in an economy, companies see their profits shrinking despite all efforts to counter this.
On the other hand, with high cost of borrowing, the cost of doing business went up, which resulted into the slowdown of the economy causing stagflation.
Stagflation poses particular challenges for policymakers, as the responses widely accepted as appropriate to combat inflation, i.
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With the economy veering dangerously close to stagflation, the Bank is hampered in its ability to address either growth or inflation without making the other worse.
They are typically several centuries long and divided into three phases: an integrative phase marked by social stability and expansion of power (and often territory); a stagflation phase marked by economic distress among commoners and rising consumption among elites; and, a disintegrative phase inaugurated by crisis and marked by depression and civil war.
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.
In order to investigate if Cyprus and Greece are suffering from problems of inflation or stagflation we examined the functional relationship between the Kumara Swamy Measure of Excess Inflationary Gap and the growth of consumer prices.
Where some countries are worried about deflation (falling prices), it seems the Euro Zone could see stagflation (rising prices and falling output) as a real threat in the near term.
In the 1970s, the oil crisis provided the supply-shock catalyst and as oil prices rose, thus creating stagflation (a period of zero or very low growth combined with above-normin flation) governments reacted by increasing interest rates.