Business
What is Stagflation?
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.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains stagflation.
Key things to understand
- 1It mixes stagnation (slow growth, high unemployment) with high inflation.
- 2Normally those two don't happen together, which makes it puzzling.
- 3A classic cause is a supply shock, like a sudden oil price spike.
- 4Fighting inflation (raising rates) can deepen unemployment, and vice versa.
- 5The 1970s oil crises are the textbook example.
Frequently asked questions
- 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.