Stagflation is a period in which the economy is simultaneously experiencing both stagnation and inflation. During times of stagnation, there is little to no economic growth, consumer demand drops, and unemployment rises. Inflation, on the other hand, is a steady increase in the costs of goods and services.

Typically, inflation exists during periods of economic growth, or an increase in goods and services. When inflation combines with stagnation the result is a weakened economy in which people have fewer resources to pay for higher-priced goods.

The term stagflation is a portmanteau, or a word created by combining two or more words, taking “stag” from stagnation and “flation” from inflation. The origin of the term has been linked back to the British parliament in the 1960s and was widely used in the 1970s to describe a well-known period of stagflation in which oil prices spiked during a stagnant economy. The stagflation of the 1970s resulted in a diminished supply of gasoline and long lines at the gas pumps as well as high interest rates and unemployment. It eventually led to a recession, or a decline in economic growth.

In the late 2000s, economists were concerned about periods of inflation, high unemployment, and weak manufacturing, along with a falling housing and stock market. Economists believe the combination of these factors  may be an indication of another period of stagflation.

During times of stagflation, food and energy costs rise while business production and sales slow down. This means profit margins diminish, which can result in less product output and layoffs. If not corrected, stagflation can lead to a recession, as it did in the 1970s.

Government and businesses work to address stagflation. The government may implement policies, such as adjusting interest rates, in the hopes of stimulating economic growth. Businesses may implement cost-saving initiatives such as creating more efficient means of manufacturing in order to increase profit margins, which can result in fewer layoffs.