Stagflation

Stagflation is an economic condition in which inflation persists alongside stagnant output or high unemployment. It challenges the usual expectation that inflation falls when economic activity weakens.

Cost-push inflation: Inflation caused when rising production costs lead businesses to raise prices. Higher input costs can raise prices while reducing production and employment.
1970s energy crisis: A period of major oil supply disruptions and price increases during the 1970s. It drove sharp energy-cost increases that coincided with weak growth and rising unemployment.
Recession: A significant decline in economic activity, commonly measured through output, income, and employment. A recession can occur without persistent inflation, unlike stagflation.
Monetary policy: Central-bank actions that influence interest rates, money, and credit to shape economic conditions. Tightening can curb inflation but may deepen weak output and unemployment.
Aggregate supply: The total quantity of goods and services producers are willing to supply at different price levels. A leftward shift can raise prices while lowering output, a central stagflation mechanism.
1973 oil crisis: An oil embargo and production cuts by Arab members of OPEC that began in 1973. Its abrupt price shock intensified inflation and recessionary pressures in many industrial economies.
Inflation: A sustained increase in the general price level of goods and services. Stagflation combines inflation with economic weakness rather than describing price increases alone.
Fiscal policy: Government decisions about taxation and spending that affect economic activity and public finances. Stimulus can support output and jobs, while adding demand that may sustain inflation.
Oil crisis: A disruption to oil supply that sharply raises prices and affects production across the economy. The 1970s oil shocks exemplified how an energy shortage could drive stagflation.
1979 energy crisis: An oil supply disruption following the Iranian Revolution that caused another major price surge. It renewed inflationary pressure while many economies were already struggling with weak growth.

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