Stagflation Explained
High inflation combined with weak growth and rising unemployment.
By Felix Narayan | Oct 18, 2026 | 5 min
Stagflation is a combination of stagnant growth and high inflation.
The 1970s are the classic example.
I Causes
- — Supply shocks, such as oil price spikes
- — Poor productivity growth
- — Expectations of inflation
II Why it is hard to fix
Raising interest rates fights inflation but can worsen unemployment.
III The 1970s
Oil shocks contributed to stagflation in many economies.
IV See also
Our inflation and recession guides.
V Policy responses
In the late 1970s and early 1980s, central banks in some countries raised interest rates sharply to bring inflation down, which contributed to recessions and high unemployment before inflation fell. Policymakers today watch inflation expectations closely, because if people expect high inflation to continue, they may demand higher wages and raise prices, making it self-reinforcing. Supply-side policies that boost productivity can help address stagflation’s roots.
See our what central banks do guide for more on interest-rate tools.
This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.
Further reading
- 1. Supply Chains: Why Disruptions Ripple Through the Economy
- 2. What Do Central Banks Actually Do?
- 3. National Debt Explained