Stagflation is an economic phenomenon  combines high inflation, stagnant economic growth, and elevated unemployment.

  • The term was first used in the 1960s and became prominent during the 1970s oil crisis.

Causes

  • Supply shocks like rising crude oil price (Eg : Iran Conflict).
  • Spike input costs (e.g., energy),
  • Slowing production while raising prices.
  • Cost-push factors, such as wage-price spirals or poor policy (e.g., excessive money supply).

Impact

  • Inflation erodes household incomes, reducing consumption.
  • Companies facing higher costs and weaker demand cut jobs.
  • Economic uncertainty discourages businesses from investing, further hampering growth.
  • High interest rates, necessary to fight inflation, reduce the value of banks’ bond holdings.

 

Source: The Indian Express