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What is stagflation?

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Quick answer

Stagflation is the painful combination of a stagnant economy and high inflation at the same time — rising prices alongside weak growth and high unemployment. It's especially hard to fix because the usual cure for one problem worsens the other.

Key things to understand

  1. It mixes stagnation (slow growth, high unemployment) with high inflation.
  2. Normally those two don't happen together, which makes it puzzling.
  3. A classic cause is a supply shock, like a sudden oil price spike.
  4. Fighting inflation (raising rates) can deepen unemployment, and vice versa.
  5. The 1970s oil crises are the textbook example.

People also ask

Why is stagflation so hard to fix?
Tools that fight inflation tend to slow the economy further, while tools that boost growth push prices higher — so fixing one worsens the other.
What causes stagflation?
Often a supply shock (like soaring oil prices) that raises costs everywhere while choking growth, sometimes worsened by policy missteps.
When did stagflation famously happen?
In the 1970s, when oil price shocks brought high inflation and high unemployment to many Western economies at once.