Stagflation
Stagnant economy with high inflation—worst of both worlds. Rising prices + high unemployment + no growth. Rare but devastating.
What You Need to Know
Stagflation is simultaneous economic stagnation and high inflation—typically high unemployment, slow/negative GDP growth, and rising prices. Considered worst economic scenario because solutions conflict.
The dilemma:
- Fight inflation: Raise interest rates → worsens unemployment and kills growth
- Fight unemployment: Lower rates, increase spending → worsens inflation
Famous example: 1970s stagflation
- Inflation: 13.5% peak (1980)
- Unemployment: 9% (1975)
- GDP growth: Negative in 1974-1975
- Stock market: -40% real returns over decade
Causes (1970s):
- Oil supply shocks (OPEC embargo)
- Nixon ending gold standard
- Government price controls
- Loose monetary policy + supply constraints
2022 had stagflation fears: 9% inflation, GDP contracted Q1-Q2, but unemployment stayed low. Fed raised rates aggressively to kill inflation despite recession risk.
Protect against stagflation:
- TIPS (Treasury Inflation-Protected Securities)
- Commodities (gold, energy)
- Stocks with pricing power
- Avoid long-term fixed-rate bonds
Sources & References
This information is sourced from authoritative government and academic institutions:
- federalreserve.gov
https://www.federalreserve.gov/faqs/economy_14419.htm
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Inflation Impact Analyzer
Calculate purchasing power erosion, compare historical prices, and analyze minimum wage real value over decades
Personal Inflation Calculator
Calculate YOUR personal inflation rate based on your actual spending patterns and see required income growth
Related Terms in Economics
Federal Funds Rate
Interest rate banks charge each other for overnight loans. Set by Federal Reserve. Controls all other interest rates—mortgages, credit cards, savings.
Inverted Yield Curve
Short-term bonds pay higher rates than long-term bonds. Recession predictor—has preceded every recession since 1950, usually by 12-24 months.
Market Correction
10-20% market decline from recent peak. Healthy and common—happens every 1-2 years. Not as severe as 20%+ bear market.
Prime Rate
Interest rate banks charge most creditworthy customers. Usually Fed funds rate + 3%. Credit cards and HELOCs tied to prime rate.
Recession
Economic downturn with declining GDP, rising unemployment, and reduced spending. Technically 2 consecutive quarters of negative GDP growth.
Yield Curve
Graph showing bond yields across different maturities. Normal = upward slope (long-term pays more). Inverted = recession warning.