What Is Stagflation?

Stagflation is the combination of economic stagnation—higher unemployment and slowing economic growth—and rising inflation happening at the same time. Stagflation is a rare occurrence, with the US experiencing bouts during the 1973–1975 and 1980 recessions.

Stagflation presents a challenge to policymakers because it is hard to address with conventional monetary policy instruments. Raising interest rates to curb inflation may increase unemployment and further slow growth. Conversely, cutting interest rates to stimulate economic growth and lower unemployment may move inflation higher.