Stagflation is an economic condition where high inflation, slow or stagnant economic growth, and high unemployment occur at the same time.
It's a mix of stagnation, slow growth and rising joblessness, and inflation, rising prices that erode purchasing power. Economists once considered it unlikely or even impossible under traditional models, because inflation typically rises during strong growth, when demand outstrips supply, and falls during slowdowns or recessions, when demand weakens. Stagflation breaks that pattern and creates a particularly tough situation.
What typically causes stagflation? The main triggers are usually supply shocks combined with policy missteps: sudden spikes in key costs like oil, energy, or commodities that raise production expenses across the economy without boosting output; loose monetary or fiscal policy that pumps too much money into the system while supply is constrained; external events such as wars, embargoes, or geopolitical disruptions that hit global supply chains; and poor policy responses, such as trying to stimulate growth with more spending or money printing while ignoring the supply issues, which can make it worse and entrench higher inflation expectations.
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