Stagflation
Quick Answer
Stagflation is an economic condition combining high inflation, high unemployment, and stagnant economic growth simultaneously.
Definition
Stagflation is an economic condition combining high inflation, high unemployment, and stagnant economic growth simultaneously.
Explanation
Stagflation is particularly challenging because the usual tools to fight inflation (raising interest rates) worsen unemployment, and tools to fight unemployment (lowering rates) worsen inflation. The most notable period of stagflation was the 1970s due to oil price shocks.
Stagflation is difficult for investors because both stocks and bonds can perform poorly simultaneously, reducing safe havens.
Example
During the 1970s stagflation, US inflation peaked at 14% while unemployment reached 9%, and the stock market was flat for a decade.
Frequently Asked Questions
What is Stagflation?
Stagflation is an economic condition combining high inflation, high unemployment, and stagnant economic growth simultaneously.
How does Stagflation work?
Stagflation is particularly challenging because the usual tools to fight inflation (raising interest rates) worsen unemployment, and tools to fight unemployment (lowering rates) worsen inflation. The most notable period of stagflation was the 1970s due to oil price shocks.Stagflation is difficult for investors because both stocks and bonds can perform poorly simultaneously, reducing safe havens.
Can you give an example of Stagflation?
During the 1970s stagflation, US inflation peaked at 14% while unemployment reached 9%, and the stock market was flat for a decade.
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