Stagflation
Stagflation is an economic condition combining slow or negative growth, high unemployment and high inflation at the same time.
The word blends stagnation and inflation. It is unusual because weak growth normally reduces price pressure. Stagflation often follows a supply shock, such as a sharp rise in oil prices, which raises costs throughout the economy while also reducing output.
The classic US example is the 1970s, when oil embargoes and loose monetary policy contributed to double-digit inflation alongside recessions and rising unemployment. It ended only after the Federal Reserve under Paul Volcker raised interest rates dramatically in the early 1980s, triggering a deep recession.
Stagflation is difficult for policymakers. Raising rates to fight inflation can worsen unemployment, while cutting rates to support jobs can fuel inflation further.
It is also hard on investors: both stocks and conventional bonds can lose value in real terms. Historically, assets such as commodities, inflation-protected bonds and companies with strong pricing power have been discussed as relative hedges, although results varied.