Inflation isn't a physical phenomenon we can observe. When do we know we're in a period of inflation? The US unemployment rate also still remains low, currently sitting at 3.6%, according to the Bureau of Labor Statistics. Unlike the 1970s, though, both the dollar and the balance sheets of major financial institutions are strong. During the energy crises then and today, a disruption in the supply chain helped fuel inflation, followed by a period of relatively low interest rates, in an attempt to expand the supply of money in the economy. Memories of this dismal economic period have factored into current fears about out-of-control inflation.Įconomic circumstances today have some parallels to the 1970s, but also major differences. As unemployment hit 9% in 1975, inflation kept ratcheting upward, reaching more than 14% by 1980. Stagflation became more widely known during what was known as the Great Inflation in the US in the 1970s. We have a sort of 'stagflation' situation and history in modern terms is indeed being made."
Stagflation, on the other hand, refers to a period where a recession is uniquely coupled with high inflation.Ī mash-up of "stagnation" and "inflation," the term stagflation was coined in 1965, when British politician Iain Macleod lamented the country's growing gap between productivity and earnings: "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. A recession refers to a period of prolonged economic decline and market contraction where the unemployment rate goes up and production goes down, generally slowing inflation. The slowdown in the US economy during the first quarter of 2022 has raised concerns of a recession, but stagflation fears are steadily mounting. What about stagflation? Is it the same as a recession? It's when the rate rises above this percentage in a short period of time that inflation becomes a concern. Typically, we see a 2% inflation rate from year to year. A $20 bill in 1985 would buy you almost four times what it buys today. Today, watching a film in the theater will easily cost you $13 for the ticket alone, never mind the popcorn, candy or soda.
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For example, in 1985, the cost of a movie ticket was $3.55. Inflation is a given over the long term, and it requires historical context to mean anything. Inflation is usually caused by either increased demand (such as COVID-wary consumers being finally ready to leave their homes and spend money) or supply side factors like increases in production costs and supply chain constraints.
Likewise, the World Bank warned in its June report that the global economy could fall into a recession and face a period of stifled growth, leading to broader financial destabilization. According to Bank of America's latest fund manager survey, 83% of investors expect a period of stagflation within the next 12 months. Stagflation - a term that defines rising prices alongside slow economic growth and high unemployment - hasn't been seen in the US since the 1970s. The COVID-19 pandemic, supply chain disruptions and the global consequences from the war in Ukraine are creating a toxic mix that could steer the economy into an even bleaker state, with the threat of mass layoffs and rising unemployment. The Federal Reserve raised the federal funds rate last week with its biggest rate hike in 28 years to try to slow the economy, but many financial experts are concerned that the central bank's policies are likely to push the economy into recession.Īnd now, stagflation fears are accelerating among Wall Street analysts and economists.
Over the last year, inflation has surged by 8.6%, the largest annual rise in four decades. Soaring prices mean that gas, food and necessities are more expensive, and a slow economy means it's harder for Americans to earn money, secure employment and save.Ĭould we really be facing an economic meltdown? Here's what we know: Inflation is not slowing, and wages aren't keeping up with skyrocketing prices. Stagflation - a rare combination of high inflation and high unemployment - ravaged the US economy in the 1970s and early 1980s. Economists say that a recession, or even stagflation, is a high risk. Inflation is steep and economic growth is sluggish.
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