Stagflation
4/9/25
Stagflation is when an economy experiences two negative conditions at the same time:
- Slow or stagnant economic growth (meaning the economy isn’t producing more goods and services)
- High inflation (meaning prices keep rising)
Think of it this way: In a healthy economy, businesses produce more stuff, more people have jobs, and prices stay relatively stable. But during stagflation, the economy isn’t growing much (or might even be shrinking), while prices for everyday items like food, gas, and clothes keep going up.
This creates a painful situation where:
- People struggle to find jobs or get raises
- The things they need to buy become more expensive
- Their purchasing power decreases
- Businesses can’t grow easily
Stagflation is especially challenging because the typical economic solutions for fixing slow growth (like lowering interest rates) can make inflation worse, while solutions for reducing inflation (like raising interest rates) can slow growth even more.
A famous example of stagflation occurred in the 1970s in the United States, when an oil crisis led to both higher prices and slower economic growth.
Recognizing Stagflation as a Normal Consumer
Without needing economic expertise, here are simple ways to tell if we might be experiencing stagflation:
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Rising prices for basics - You notice groceries, gas, and everyday items consistently getting more expensive over months
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Job market troubles - Friends and family members struggle to find work, hear about layoffs, or notice fewer “We’re Hiring” signs
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Stagnant wages - Your salary stays the same while prices keep climbing, making you feel poorer
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Interest rates - Banks charge higher interest on loans but don’t increase savings rates proportionally
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News reports mixing stories about:
- High inflation or “cost of living crisis”
- Economic slowdown or “recession fears”
- Companies cutting back or not expanding
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Declining purchasing power - Your paycheck buys noticeably less than it did a year ago
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Business closures in your area while prices continue rising
Stagflation creates a unique feeling of economic pressure from multiple directions simultaneously - things cost more while opportunities seem limited, creating a general sense of economic stress even without understanding complex economic indicators.