Stagflation is a situation in the economy of the nation or region that experiences both inflation and very slow growth in the economy. Depending on the characteristics of the event, it is also termed recession-inflation. During one of such events, economic growth slows, GDP strikes a very low point and the unemployment rate maintains a steady high.
Slow economic development almost always sees an increase in the unemployment rate, but the increase in price hits the economy particularly hard. This phenomenon is viewed negatively as an increase in unemployment and very slow or almost stagnant economic growth lead to a visible decrease in the consumers’ ability to purchase their necessities.
In general, stagflation occurs when the generation of money increases while the supply of goods and services remains limited. Increased tax rates to counter the effects of inflation can hamper economic progress and act as the major cause of stagflation.
Use of this Term in a Sentence
- Stagflation was initially identified in the 1970s when an oil shock caused fast inflation and significant unemployment in many industrialized nations.
- A rapid spike in the cost of oil can lower an economy's productive potential which in turn, can cause stagflation.
- Stagnation or recession-inflation is among the direst consequences of bad economic policy.
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