Stagflation
High inflation combined with weak growth and rising unemployment.
In plain words
Stagflation breaks the usual rule that inflation and unemployment move in opposite directions (the Phillips curve). It happened in the 1970s when oil price shocks pushed up costs across the economy while growth stalled. Central banks face a dilemma: raising rates to fight inflation risks making the recession worse.
Frequently asked questions
What caused stagflation in the 1970s?
The 1973 OPEC oil embargo and 1979 oil price shock raised energy costs across the economy, pushing up inflation while simultaneously depressing output and employment. The supply shock broke the usual trade-off between inflation and unemployment.
Is stagflation happening now?
As of 2024, most major economies experienced disinflation without entering recession — a "soft landing". Stagflation risk was elevated in 2022 but did not fully materialise in most developed economies.