Stagflation
Historical Parallels and Contemporary Risks
Stagflation — the simultaneous occurrence of stagnating economic growth, high unemployment, and high inflation — is considered one of the most challenging macroeconomic conditions to address because the policy tools to combat inflation (tight monetary policy) worsen growth, and vice versa.
- The term "stagflation" was coined by British politician Iain Macleod in 1965
- Classic episode: The 1970s oil shocks (1973 Arab Oil Embargo, 1979 Iranian Revolution) triggered stagflation in Western economies
- The 1973 embargo by Arab OPEC members quadrupled oil prices; global supply fell by approximately 4.5 million barrels/day (~7% of supply)
- Key difference in 2026: The US is now the world's largest oil producer (~13 million b/d), reducing its vulnerability compared to the 1970s
- However, developing Asian economies are more vulnerable as ~80% of their oil imports transit the Strait of Hormuz
- The Phillips Curve (inverse relationship between unemployment and inflation) breaks down during stagflation
- Central banks face a policy dilemma during stagflation: rate hikes to curb inflation suppress growth further
● Tracked since March 05, 2026 · last seen April 06, 2026 · updates as the daily brief publishes
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