Stagflation
The toxic combination of high inflation and stagnating economic growth — the worst macro environment for central banks and equity markets.
Stagflation is the simultaneous presence of high inflation and weak or negative economic growth. It puts central banks in an impossible bind: cutting rates to stimulate growth risks worsening inflation, while hiking rates to fight inflation deepens the economic pain.
The 1970s U.S. stagflation — driven by oil price shocks and loose monetary policy — remains the defining case study. Stagflation is brutal for equities (compressed margins from rising costs, weak demand), and real assets like commodities and inflation-linked bonds tend to outperform.
Related Terms
Consumer Price Index (CPI)
Tracks changes in the price of a fixed basket of consumer goods and services — the most closely watched inflation gauge.
BeginnerHard Landing
The painful outcome when aggressive monetary tightening overcorrects and tips the economy into recession.
IntermediateInflation
The rate at which the general price level of goods and services rises, eroding purchasing power over time.
BeginnerMonetary Policy
Central bank actions — rate changes, asset purchases, reserve requirements — designed to control inflation and support employment.
BeginnerRecession
A significant economic contraction — commonly defined as two consecutive quarters of negative GDP growth — that hits corporate earnings and risk assets hard.
Beginner