Inflation vs. Stagflation: An Overview

Inflation is a term used by economists to define broad increases in prices. Inflation is the rate at which the price of goods and services in an economy increases. Inflation can also be defined as the rate at which purchasing power declines. For example, if inflation is at 5% and you currently spend $100 per week on groceries, the following year you would need to spend $105 for the same amount of food.

Stagflation is a term used by economists to define an economy that has inflation, a slow or stagnant economic growth rate, and a relatively high unemployment rate. Economic policymakers across the globe try to avoid stagflation at all costs. With stagflation, a country's citizens are affected by high rates of inflation and unemployment. High unemployment rates further contribute to the slowdown of a country's economy, causing the economic growth rate to fluctuate no more than a single percentage point above or below zero.

Key Takeaways

Inflation is the rate at which the price of goods and services in an economy increases.

Stagflation refers to an economy that has inflation, a slow or stagnant economic growth rate, and a relatively high unemployment rate.

With stagflation, a country's citizens are affected by high rates of inflation and unemployment.

Inflation is natural, expected, and can be managed, while stagflation is avoided at all costs.

There are three main catalysts for inflation: demand pull-inflation, cost-pull inflation, and built-in inflation.

The reasons for stagflation vary but are mainly due to harsh regulations combined with an increase in the money supply.

It is believed that stagflation will most likely never occur again because poor government policies that led to it in the 1970s would not be used.