What Is Stagflation and How Does It Affect You?

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Stagflation is a combination of the words stagnation and inflation. it happens when a country sees high price increases (inflation), slow or negative growth, plus high unemployment rates.

Rising Prices in 2022

Some economists were worried that we’d enter a period of stagflation in mid-2022. This is because the consumer prices rose 9.1%, which was the highest increase in 40 years.

However, economic growth continued in spite of those numbers. The Federal Reserve aggressively raised interest rates over the 2022-23 period in an effort to tame inflation. Since interest rates were risen, prices have fallen dramatically and the economy still hasn’t developed stagflation.

What Happens During Stagflation?

During stagflation, prices will continue rising, but jobs will be harder to find. Wages may not keep pace with inflation, which will, in turn, lead to halted economic growth. People and businesses alike may feel insecure about spending money.

What Causes Stagflation?

Stagflation is a relatively rare occurrence because it consists of seemingly opposing economic circumstances.

Generally speaking, higher wages and economic growth can bring about inflation, while a slowing economy brings inflation rates down.

But certain factors can make conditions ripe for that unsavory blend of high inflation and a shrinking economy. For example:

• Supply shocks, like what happened after COVID lockdowns
• Suddenly losing access to commodities like oil due to wars

Recent Examples

In 2016, Venezuela entered hyperinflation when their inflation rate hit 254.96%. In 2018 it peaked at 63,000 percent. This economic crisis happened after the government started printing money in attempt to fix oil companies going bankrupt.

What Does Stagflation Mean for the U.S.?

If the U.S. enters a period of stagflation, prices will continue rising across the board even as companies attempt to cut costs through layoffs or pay cuts.

Any emergency savings you’ve tucked away won’t have as much buying power as a result of the inflation.  

Factors apart from consumer and business spending can impact inflation. Some include:

• High oil prices
• Low-interest rates
• Trade sanctions and tariffs

Current Events Affecting Inflation in the U.S.

As of April 2025, inflation is the lowest is has been since 2021. However, Moody’s Analytics found that the top 10% of households are responsible for almost half of consumer spending. This shows that many American household don’t have a lot of extra money to spend. The first quarter of 2025 saw a decrease in goods and services produced in the United States, a key recession indicator.

The Trump administration’s tariff policy has also created a lot of uncertainty about the future costs of global imports. If the tariffs cause goods to get more expensive when many American families are already strapped for cash, this can cause serious economical problems.

What To Do During Stagflation

There are a couple things you can do during a period of high inflation:

• Look at your budget to see where you can cut costs
• Continue investing, if you can
• Don’t cash out — or even look at — 401(k)s or IRAs

Although the stock market might have a downturn, consider these investments:

• Value stocks: These can grow once stagflation ends.
• Precious metals: Tend to hold their value.
• Commodities: Rise as the price of consumer goods go up.
• Commodity ETFs: These investments track the prices of similar commodities in one fund.

Keep in mind that stocks, ETFs, commodities and even precious metals can be volatile. Any investment carries risk, so you will want to invest in line with your risk tolerance.

Stagflation is also harder to fight since it’s so unpredictable. Increasing interest rates to slow inflation can compound job loss and slow economic growth to undesirable levels. Experts agree it’s generally easier to avoid stagflation than to stop it once it starts.

The Bottomm Line

During a recession, a country’s economy has slow growth, coupled with high unemployment. But these factors tend to reduce inflation since spending also slows as a reaction to consumer fear. When prices remain elevated due to other factors, stagflation occurs.

Stagflation may be worse than a recession for many people. At a time when people are losing jobs, prices remain elevated. This can lead to food insecurity, foreclosures or homelessness. Financial struggles will impact almost everyone except for the wealthiest people in a society.

John Csiszar contributed to the reporting of this article.

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