Glossary · Economy
Stagflation
Stagflation is the bad mix of high inflation with a stagnant economy and rising unemployment, like the US in the 1970s.
Unemployment 4.2% + inflation 3.7%, Sep 2026.
May 1980: unemployment 7.5%, inflation 14.4%.
In plain words
Usually prices rise fast when the economy is booming and calm down when it slumps. Stagflation (stagnation + inflation) is when you get the worst of both at once: prices keep climbing while the economy stalls and people lose their jobs.
The classic case is the 1970s. Oil prices jumped in 1973 and again in 1979, making almost everything dearer to produce and move. In the US, inflation peaked at 14.6% in Mar 1980, and unemployment climbed as high as 10.8% in Nov 1982.
It is hard to fix because the usual medicine helps one problem and worsens the other: cutting interest rates supports jobs but feeds inflation; raising them fights inflation but costs jobs.
Example
The misery index
A rough gauge invented by the economist Arthur Okun: add the unemployment rate to the inflation rate.
- A calm year: 4% unemployment + 2% inflation = 6%.
- The US record: 7.5% unemployment + 14.4% inflation = 21.9% (May 1980).
- Now: 4.2% + 3.7% = 7.9% (Sep 2026).
It is crude (it weighs a point of inflation the same as a point of unemployment), but it captures what people feel.
One level deeper
Before the 1970s, many economists believed in a stable trade-off, the Phillips curve: a bit more inflation buys a bit less unemployment. Stagflation broke it. Once people expect high inflation, they build it into wages and prices, and it keeps going even in a slump.
Supply shocks are the usual trigger: when oil, food or other key inputs suddenly cost more, companies produce less and charge more at the same time. That happened in 1973–74 and 1979–80, and to a smaller degree in 2021–22.
The 1970s stagflation ended the hard way. The Federal Reserve under Paul Volcker pushed the federal funds rate to a monthly average of 19.1% in Jun 1981, two recessions followed, and inflation fell and stayed low for decades.
Inflation and unemployment since 1948
Most of the time the two lines take turns: inflation rises in booms, unemployment in slumps. In the 1970s and early 1980s both were high at the same time.
The numbers behind the chart
| Date | Inflation, last 12 months | Unemployment rate |
|---|---|---|
| Jan 1948 | 10.2% | 3.4% |
| Dec 1950 | 5.8% | 4.3% |
| Dec 1960 | 1.4% | 6.6% |
| Dec 1970 | 5.6% | 6.1% |
| Dec 1980 | 12.3% | 7.2% |
| Dec 1990 | 6.3% | 6.3% |
| Dec 2000 | 3.4% | 3.9% |
| Dec 2010 | 1.4% | 9.3% |
| Dec 2020 | 1.3% | 6.7% |
| Dec 2022 | 6.4% | 3.5% |
| Dec 2023 | 3.3% | 3.8% |
| Dec 2024 | 2.9% | 4.1% |
| Dec 2025 | 2.7% | 4.4% |
| Sep 2026 | 3.7% | 4.2% |
Why it matters
It is the nightmare case for central banks: there is no painless way out, only a choice of which problem to fight first.
Stocks and bonds both tend to suffer: inflation erodes bonds and weak growth hurts profits. Over the 1970s, US stocks returned +5.8% a year with dividends but −1.4% a year after inflation.
It shows the limits of policy: no interest rate can make oil cheaper.
A common mistake
Myth: High inflation always comes with a booming economy.
In fact: Not when the shock comes from the supply side. In the 1970s inflation and unemployment rose together, and the misery index peaked at 21.9% in May 1980.
Questions people ask
What causes stagflation?
Usually a supply shock, such as a jump in oil prices, combined with expectations of inflation that get built into wages and prices, and money that stayed too loose for too long.
How did the US end stagflation?
By squeezing inflation out with very high interest rates in 1979–82. It cost two recessions, but inflation fell from double digits to about 3% to 4% by 1983 and stayed low for decades.
Is the misery index an official statistic?
No. It is a simple sum of two official numbers, the unemployment rate and the inflation rate: 7.9% now (Sep 2026).
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Effective federal funds rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series H15/H15/RIFSPFF_N.D (Federal funds effective rate), Data Download Program. The EFFR is subject to the Terms of Use posted at newyorkfed.org. The New York Fed is not responsible for publication of the EFFR by BigCapital, does not sanction or endorse any particular republication, and has no liability for your use.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Unemployment rate: U.S. Bureau of Labor Statistics, Current Population Survey (household survey), series UNRATE; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.