What is stagflation, and might it make a comeback?
A combination of inflation and sluggish growth brings memories of the 1970s
INFLATION IS RUNNING at around 8% in both America and Europe, far above central-bank targets. Growth is starting to slow down, prompting fears of a recession. That has led to some, including the World Bank, to warn of an old foe: “stagflation”. The portmanteau, a combination of stagnation and inflation, was popularised in the 1970s by Paul Samuelson, a Nobel economics laureate. In America it brings memories of a time when inflation was high, the economy struggled through two recessions and unemployment remained elevated. What leads to stagflation, and to what extent are America and Europe at risk?
This article appeared in the The Economist explains section of the print edition under the headline “What is stagflation, and might it make a comeback?”
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