What is stagflation?
Stagflation is high inflation combined with weak or no economic growth, usually with rising unemployment. The word joins stagnation and inflation.
Stagflation
Stagflation is high inflation at the same time as weak or no economic growth, usually with rising unemployment. It is hard on markets because the usual cure for each problem makes the other worse.
| MEASURE | FIGURE | FOR |
|---|---|---|
| Growth: GDP, annualized | 3.4% | |
| Unemployment rate | 4.1% |
Why stagflation is hard for the Fed
Against inflation alone the Fed raises rates; against a slump alone it cuts. In stagflation it has to choose, and either choice hurts: cutting risks letting inflation settle higher, and holding or hiking deepens the slowdown. That conflict is why a stagflation scare can hit bonds and stocks at the same time.
The 1970s, and what to watch now
The US case is the 1970s, when oil shocks pushed inflation into double digits while growth stalled and unemployment rose. The three figures to watch are inflation from CPI, growth from GDP and the unemployment rate. Stagflation needs high inflation and weak growth together; one without the other is just inflation, or just a slowdown.
FAQ
Is the US in stagflation?
Compare the latest inflation, growth and unemployment figures, on the CPI page, the GDP page and the unemployment rate page. Stagflation needs high inflation and weak growth at the same time; Helious reads growth under 1% as weak and inflation over 3% as high, and there is no official threshold.
Why is stagflation bad for bonds and stocks?
Inflation keeps the Fed from cutting, which holds yields up and hurts bonds, while weak growth hurts earnings and stocks. The usual cushion, a rally in bonds when stocks fall, can fail.