Stagflation
The combination of high inflation with weak growth and rising unemployment.
How it is identified
Test: inflation is elevated while output growth is weak or negative and unemployment is rising
Unit
qualitative
In depth
Stagflation is difficult precisely because it removes the central bank's usual trade-off: raising rates to fight inflation deepens the slowdown, and cutting rates to support growth worsens inflation. It typically originates in a supply shock — the oil crises of the 1970s being the defining example — where costs rise without demand rising. For investors it is the worst combination, since it damages both equities, through weak earnings and higher discount rates, and bonds, through inflation. Real assets and commodities have historically fared least badly, though there is no reliable shelter.
Worked example
Inflation at 8% with real growth at 1% leaves a central bank choosing between a deeper slowdown and entrenched inflation. Nominal bond yields at 8% deliver a real return of 1.08 / 1.08 - 1 = 0% before tax.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Stagflation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.