Stagflation
The Policymaker's Nightmare
Stagflation is a macroeconomic condition characterised by the simultaneous occurrence of high inflation, sluggish economic growth, and elevated unemployment. The term — a portmanteau of "stagnation" and "inflation" — was coined by British politician Iain Macleod in a 1965 speech to Parliament, though it became globally notorious during the 1970s energy crises. Classical monetary policy tools are largely ineffective against stagflation: raising interest rates can tame inflation but worsens growth and unemployment, while cutting rates stimulates growth but exacerbates inflation. Supply-side shocks — particularly oil price spikes — are the most common trigger, as they simultaneously reduce productive capacity (raising costs) and suppress consumer purchasing power (reducing demand and growth).
- 1973 OPEC oil embargo: crude prices quadrupled, triggering a decade of stagflation in the US and Europe
- 1979 Iranian Revolution triggered a second oil shock, reinforcing the stagflation spiral
- Stagflation is particularly difficult to resolve: the Paul Volcker-era US Fed had to raise rates to 20% to break the cycle, inducing a sharp recession
- In developing economies like India, stagflation is more severe because social safety nets are thinner and inflation hits the poor hardest
● Tracked since March 05, 2026 · last seen April 06, 2026 · updates as the daily brief publishes