In economics, stagflation, a portmanteau of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It raises a dilemma for economic policy, since actions designed to lower inflation may exacerbate unemployment, and vice versa. The term is generally attributed to Iain Macleod, a British Conservative Party politician who became chancellor of the exchequer in 1970 and coined the phrase in his speech to Parliament in 1965.[1][2][3][4]

John Maynard Keynes did not use the term, but some of his work refers to the conditions that most would recognise as stagflation. In the version of Keynesian macroeconomic theory that was dominant between the end of World War II and the late 1970s, inflation and recession were regarded as mutually exclusive, the relationship between the two being described by the Phillips curve. Stagflation is very costly and difficult to eradicate once it starts, both in social terms and in budget deficits.

The Great Inflation

The term "stagflation" was first coined during a period of inflation and unemployment in the United Kingdom. The United Kingdom experienced an outbreak of inflation in the 1960s and 1970s. On 17 November 1965, Iain Macleod, the spokesman on economic issues for the United Kingdom's Conservative Party, warned of the gravity of the UK economic situation in the House of Commons:

"We now have the worst of both worlds—not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of "stagflation" situation. And history, in modern terms, is indeed being made."[3][5]

He used the term again on 7 July 1970, and the media began also to use it, for example in The Economist on 15 August 1970, and Newsweek on 19 March 1973.

In a Bank of England working papers series, article authors Edward Nelson and Kalin Nikolov (2002) examined causes and policy errors related to the Great Inflation in the United Kingdom in the 1970s, arguing that as inflation rose in the 1960s and 1970s, UK policy makers failed to recognize the primary role of monetary policy in controlling inflation. Instead, they attempted to use non-monetary policies and devices to respond to the economic crisis. Policy makers also made "inaccurate estimates of the degree of excess demand in the economy, [which] contributed significantly to the outbreak of inflation in the United Kingdom in the 1960s and 1970s.[3]

Stagflation was not limited to the United Kingdom, however. Economists have shown that stagflation was prevalent among seven major economies from 1973 to 1982.[6] After inflation rates began to fall in 1982, economists' focus shifted from the causes of stagflation to the "determinants of productivity growth and the effects of real wages on the demand for labor".[6]

Other Languages
العربية: ركود تضخمي
български: Стагфлация
català: Estagflació
čeština: Stagflace
Deutsch: Stagflation
español: Estanflación
Esperanto: Stagflacio
euskara: Estanflazio
français: Stagflation
Հայերեն: Ստագֆլյացիա
hrvatski: Stagflacija
Bahasa Indonesia: Stagflasi
italiano: Stagflazione
עברית: סטגפלציה
lietuvių: Stagfliacija
magyar: Stagfláció
Bahasa Melayu: Stagflasi
Nederlands: Stagflatie
norsk nynorsk: Stagflasjon
polski: Stagflacja
português: Estagflação
română: Stagflație
русский: Стагфляция
Simple English: Stagflation
slovenčina: Stagflácia
slovenščina: Stagflacija
српски / srpski: Стагфлација
svenska: Stagflation
Tagalog: Stagflation
Türkçe: Stagflasyon
українська: Стагфляція
Tiếng Việt: Đình lạm