what is stagflation 
stagflation is an economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation economic policymakers find this combination particularly difficult to handle as attempting to correct one of the factors can exacerbate another once thought by economists to be impossible stagflation has occurred repeatedly in the developed world since the 1970s oil crisis in mid 2022 many were saying that the united states had not entered a period of stagflation but might soon experience one at least for a short period in june 2022 forbes magazine argued that a period of stagflation was likely because economic policymakers would tackle unemployment first leaving inflation to be dealt with later 1investopedia jiaqi zhouunderstanding stagflationthe term stagflation was first used by british politician iain macleod in a speech before the house of commons in 1965 a time of economic stress in the united kingdom 2 he called the combined effects of inflation and stagnation a stagflation situation the term was revived in the u s during the 1970s oil crisis during this time inflation doubled in 1973 and hit double digits in 1974 unemployment reached 9 by may 19753 4the effects of stagflation were illustrated by means of a misery index this index a simple sum of the inflation rate and the unemployment rate tracked the real world effects of stagflation on a nation s people stagflation was once believed to be impossible the economic theories that dominated academic and policy circles for much of the 20th century ruled it out of their models in particular the economic theory of the phillips curve which developed in the context of keynesian economics portrayed macroeconomic policy as a trade off between unemployment and inflation as a result of the great depression and the ascendance of keynesian economics economists became preoccupied with the dangers of deflation and argued that most policies designed to lower inflation tend to increase unemployment while policies designed to lower unemployment raise inflation the advent of stagflation across the developed world later in the 20th century showed that this was not the case stagflation is a great example of how real world experience can run roughshod over widely accepted economic theories and policy prescriptions since that time inflation has proved to be persistent even during periods of slow or negative economic growth in the past 50 years every declared recession in the u s has seen a continuous year over year rise in consumer price levels 5the sole partial exception to this is the lowest point of the 2008 financial crisis and even then the price decline was confined to energy and transportation prices while overall consumer prices other than energy continued to rise 6