Inflation, deflation, and now stagflation — at what point does it seem like economists are making up words? Despite the funny name, it’s a real thing. So, we must ask, what the heck is stagflation? The Investopedia team is quick to have the answer, informing us on just what stagflation is.
Like how inflation is used to describe inflated prices and declining purchase power, stagflation refers to the economy’s growth rate slowing because of inflation. In short, stagflation is when an economy stalls, where prices are high and the number of jobs plateau.
It’s an exceedingly rare thing to happen in developed economies. It can only occur when government and financial policy fall short of quelling inflation. The first and last instance of stagflation was in the 1970s, due to wage controls and high unemployment.
The Relevance to Today
The new question becomes, does this apply to us today? Former Federal Reserve chairs worry that it’s a possibility, however, a lot must still unfold before we can say anything for sure. The Fed’s plan to raise and adjust interest rates is working slower than everyone expected it to, and that is where the worry is coming from.
One characteristic of stagflation is high unemployment, however, according to the Bureau of Labor Statistics, the U.S. unemployment rate is currently only at 3.6 percent. There would need to be a massive turnaround for the economy to experience life like in the ’70s.
The Fed and its plan need to shake something loose when it comes to inflation, so that the economy can get back on track to a full recovery. Join the Council for Retirement Security in helping seniors protect themselves and their benefits from an uncertain economy.