Stagflation

In economics, stagflation, a portmanteau of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It raises a dilemma for economic policy, since actions designed to lower inflation may exacerbate unemployment, and vice versa.The term is generally attributed to a British Conservative Party politician who became chancellor of the exchequer in 1970, Iain Macleod, who coined the phrase in his speech to Parliament in 1965. Keynes did not use the term, but some of his work refers to the conditions that most would recognise as stagflation. In the version of Keynesian macroeconomic theory that was dominant between the end of World War II and the late 1970s, inflation and recession were regarded as mutually exclusive, the relationship between the two being described by the Phillips curve. Stagflation is very costly and difficult to eradicate once it starts, both in social terms and in budget deficits.One economic indicator, the misery index, is derived by the simple addition of the inflation rate to the unemployment rate.