stagflation
An economic condition combining stagnant growth, high unemployment, and high inflation simultaneously — the worst of both worlds that confounds traditional policy responses.
Example
“The 1970s stagflation caused by oil shocks presented the Fed with an impossible dilemma — raising rates would fight inflation but worsen unemployment.”
Memory Tip
STAGFLATION = STAGNATION + INFLATION combined. The nightmare scenario for central bankers.
Why It Matters
Stagflation directly threatens your purchasing power and job security simultaneously, making it harder to save money while prices rise and employment becomes scarce. Understanding stagflation helps you make better decisions about investments, wages, and whether to spend or save during uncertain economic times.
Common Misconception
Many people mistakenly believe that inflation and unemployment always move in opposite directions, so they assume you cannot have both problems at once. In reality, stagflation proves this assumption wrong by showing that poor policy decisions or supply shocks can create the worst economic scenario of all.
In Practice
During the 1970s oil crisis, the United States experienced stagflation where inflation reached 12 percent annually while unemployment hit 9 percent, meaning workers faced both skyrocketing grocery and gas prices and significant difficulty finding jobs. A person earning 30,000 dollars annually saw their real purchasing power drop by thousands while competing with millions of others for limited job openings.
Etymology
Portmanteau of STAGNATION (economic slowdown) + INFLATION. Economy is STAGNATING while prices are INFLATING.
Common Misspellings
Learn economics & finance from top universities
Related Terms
More in economics
Other economics terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.