What is Stagflation?

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Stagflation is a difficult economic condition characterized by three simultaneous problems: stagnant economic growth (slow or no GDP growth), high inflation (rising prices), and high unemployment, which reduces people's purchasing power and makes policy solutions challenging, as actions to fight inflation can worsen unemployment, and vice versa. The term combines "stagnation" and "inflation" and was famously seen in the U.S. during the 1970s, triggered by supply shocks like the OPEC oil crisis. 

Key characteristics

• Stagnant Growth: The economy isn't expanding, meaning businesses aren't producing much, and people spend less.
• High Inflation: The cost of goods and services rises rapidly, decreasing the value of money.
• High Unemployment: Job growth stalls or reverses, increasing joblessness. 

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Why it's so problematic

• Policy Dilemma: Standard tools (raising interest rates to curb inflation or cutting them to boost jobs) make the other problem worse, creating a tough situation for central banks.
• Reduced Purchasing Power: People lose jobs or have stagnant wages while facing higher costs for everything, squeezing household budgets. 

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Historical example (1970s U.S.)

• Causes: A combination of factors, including rising oil prices (supply shock) and shifts in monetary policy, disrupted supply chains and increased costs.
• Impact: Soaring inflation (reaching over 14%), high interest rates, and significant job losses. 

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What causes it

• Supply Shocks: Sudden increases in essential commodity prices (like oil or food) that raise production costs across the economy.
• Policy Missteps: Government policies that inadvertently fuel inflation while hindering growth.
• Debt Accumulation: High levels of public and private debt can contribute to instability. 

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• What Is Stagflation? - Synovus

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