Stagflation (stagnation and inflation in one word) depicts a time period when an economy is not only suffering from a recession (declining GDP), but high unemployment and inflation rates as well. Usually unemployment and inflation are inversely related, which makes stagflation a rare occurrence. It first happened in the 1970s, when OPEC put an oil embargo on the United States, resulting in oil prices skyrocketing to three times the standard value at that time. As of September 2023, the price of oil fell by 20 percent in comparison to last year after having increased by 76 perent as a result of Russian invasion of Ukraine. The has been signs of stagflation in some countries through 2022 and 2023, but falling inflation rates indicate that the worst has been avoided.

During the period beginning roughly in the mid-1980s until the Global Financial Crisis (2007-2008), the U.S. economy experienced a time of relative economic calm, with low inflation and consistent GDP growth. Compared with the turbulent economic era which had preceded it in the 1970s and the early 1980s, the lack of extreme fluctuations in the business cycle led some commentators to suggest that macroeconomic issues such as high inflation, long-term unemployment and financial crises were a thing of the past. Indeed, the President of the American Economic Association, Professor Robert Lucas, famously proclaimed in 2003 that "central problem of depression prevention has been solved, for all practical purposes". Ben Bernanke, the future chairman of the Federal Reserve during the Global Financial Crisis (GFC) and 2022 Nobel Prize in Economics recipient, coined the term 'the Great Moderation' to describe this era of newfound economic confidence. The era came to an abrupt end with the outbreak of the GFC in the Summer of 2007, as the U.S. financial system began to crash due to a downturn in the real estate market.

Causes of the Great Moderation, and its downfall

A number of factors have been cited as contributing to the Great Moderation including central bank monetary policies, the shift from manufacturing to services in the economy, improvements in information technology and management practices, as well as reduced energy prices. The period coincided with the term of Fed chairman Alan Greenspan (1987-2006), famous for the 'Greenspan put', a policy which meant that the Fed would proactively address downturns in the stock market using its monetary policy tools. These economic factors came to prominence at the same time as the end of the Cold War (1947-1991), with the U.S. attaining a new level of hegemony in global politics, as its main geopolitical rival, the Soviet Union, no longer existed. During the Great Moderation, the U.S. experienced a recession twice, between July 1990 and March 1991, and again from March 2001 tom November 2001, however, these relatively short recessions did not knock the U.S. off its growth path. The build up of household and corporate debt over the early 2000s eventually led to the Global Financial Crisis, as the bursting of the U.S. housing bubble in 2007 reverberated across the financial system, with a subsequent credit freeze and mass defaults.

Graph and download economic data for Inflation, consumer prices for the United States (FPCPITOTLZGUSA) from 1960 to 2023 about consumer, CPI, inflation, price index, indexes, price, and USA.

Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.

The 1973-1975 recession marked the end of a remarkably prosperous period for developed economies. Apart from the United States, who experienced a brief recession in 1969-70, the other nations had enjoyed a period of uninterrupted growth in the 25 years leading up to this event. Japan in particular had the fastest growth of any major economy. This ended, however, following the 1973 oil crisis, which saw the member states of the OAPEC (Organization of Arab Petroleum Exporting Countries) place an embargo on the nations who supported Israel during the Yom Kippur War, particularly the U.S., who supplied arms to Israel. As a result, oil prices quadrupled in some periods; the U.S. and most of its major economic partners then went into recession due to their dependency on oil imports. Additional factors exacerbated the effects of the recession in each country, such as the miners' strike in the United Kingdom, or Nixon's unstable economic policies in the early 1970s. It was not until 1976 when the major OECD economies would come out of their recession, although real GDP growth rates would not return to the consistent highs experienced in the 1950s and 1960s. Additionally, while GDP growth resumed within a few years, inflation rates and unemployment rates generally remained higher going into the 1980s.

The misery index is an economic indicator that combines the unemployment rate and the inflation rate. Although it is rare for both unemployment and inflation to be high at the same time, there have been instances of this occurring, such as during episodes of stagflation in the 1970s. Due to high levels of inflation since late 2021, the misery index in March 2023 is at a relatively high rate of 8.49 percent.

Graph and download economic data for Trimmed Mean PCE Inflation Rate (PCETRIM6M680SFRBDAL) from Jul 1977 to Jan 2025 about trimmed mean, average, PCE, consumption expenditures, consumption, personal, inflation, rate, and USA.

When adjusted for inflation, the 2024 federal minimum wage in the United States is over 40 percent lower than the minimum wage in 1970. Although the real dollar minimum wage in 1970 was only 1.60 U.S. dollars, when expressed in nominal 2024 dollars this increases to 13.05 U.S. dollars. This is a significant difference from the federal minimum wage in 2024 of 7.25 U.S. dollars.

Graph and download economic data for Consumer Price Indices (CPIs, HICPs), COICOP 1999: Consumer Price Index: Total for United States (CPALTT01USA659N) from 1956 to 2024 about all items, CPI, price index, indexes, price, and USA.

Historical dataset of nominal and real (inflation-adjusted) gold prices per ounce back to 1915. The series is deflated using the headline Consumer Price Index (CPI) with the most recent month as the base. The current month is updated on an hourly basis with today's latest value.

Long term historical dataset of the broad price-adjusted U.S. dollar index published by the Federal Reserve. The index is adjusted for the aggregated home inflation rates of all included currencies. The price adjustment is especially important with our Asian and South American trading partners due to their significant inflation episodes of the 80s and 90s.

The Covid-19 pandemic saw growth fall by 2.2 percent, compared with an increase of 2.5 percent the year before. The last time the real GDP growth rates fell by a similar level was during the Great Recession in 2009, and the only other time since the Second World War where real GDP fell by more than one percent was in the early 1980s recession. The given records began following the Wall Street Crash in 1929, and GDP growth fluctuated greatly between the Great Depression and the 1950s, before growth became more consistent.

During the 19th century, the United States generally had a negative trade balance, importing more than it exported, particularly from the British Empire. This changed at the turn of the 20th century, and the U.S. consistently had a positive trade balance between 1896 and 1970. The greatest periods of fluctuation came during the world wars, as well as an observable decline following the Wall Street Crash of 1929.

While inflation rates increased the total value of imports and exports over time, the rate of growth did increase significantly from 1900 onwards. The early 20th century saw the U.S. move away from its traditional isolationist policies (apart from a brief period during the great Depression) and emerge as a global superpower. Following the Second World War, the U.S. used its economic power to maintain its influence across the globe, as it sought to suppress the expansion of communism.

The period between 1950 and 1973, known as the "Golden Age of capitalism" in the west, was the most prosperous period in Europe's modern history. The economic boom in the post-war period saw GDP grow by an average of almost four percent in Western and Eastern Europe, and almost five percent in the south. Although the west was the most technologically advanced of the three, this period did see a significant amount of catching up in the other two regions, whose rapid industrialization and urbanization changed the lives of its citizens forever. Recession hits the west The recession of 1973-1975 brought this economic and industrial growth to an end, however, as conflict in the Middle East saw oil prices skyrocket. Virtually all of Western Europe's industrial powers went into recession, and this had a detrimental knock-on effect in Poland and Romania due to their indebtedness to the west. While the recession ended in most countries by 1976, factors such as unemployment, inflation, and industrial output often remained high until the 1980s. The 1980s and 1990s also saw the rapid economic growth of countries such as Ireland and Finland. However, growth was much slower in these decades for most western economies than it had been in the 1950s and1960s. Collapse of communism The 1970s marked the beginning of the economic decline in Eastern Europe, as the command economies of the East Bloc could not maintain pace with the capitalist west and failed to adapt to the challenges that emerged in this period. Communism in Eastern Europe eventually ended around the early 1990s, and the largest power, the Soviet Union, was dissolved. This resulted in severe economic hardships in the former communist states, and recovery in the former-Soviet states did not begin until the late 1990s. The effects of communism's collapse in Europe was so severe that GDP in the east actually fell by an average of 0.9 percent per year between 1973 and 1998

The unemployment rate of the United Kingdom was 4.4 percent in January 2025, unchanged from the previous month. Before the arrival of the COVID-19 pandemic, the UK had relatively low levels of unemployment, comparable with the mid-1970s. Between January 2000 and the most recent month, unemployment was highest in November 2011 when the unemployment rate hit 8.5 percent. Will unemployment continue to rise in 2025? Although low by historic standards, there has been a noticeable uptick in the UK's unemployment rate, with other labor market indicators also pointing to further loosening. In December 2024, the number of job vacancies in the UK, fell to its lowest level since May 2021, while payrolled employment declined by 47,000 compared with November. Whether this is a continuation of a broader cooling of the labor market since 2022, or a reaction to more recent economic developments, such as upcoming tax rises for employers, remains to be seen. Forecasts made in late 2024 suggest that the unemployment rate will remain relatively stable in 2025, averaging out at 4.1 percent, and falling again to four percent in 2026.
Demographics of the unemployed As of the third quarter of 2024, the unemployment rate for men was slightly higher than that of women, at 4.4 percent, compared to 4.1 percent. During the financial crisis at the end of the 2000s, the unemployment rate for women peaked at a quarterly rate of 7.7 percent, whereas for men, the rate was 9.1 percent. Unemployment is also heavily associated with age, and young people in general are far more vulnerable to unemployment than older age groups. In late 2011, for example, the unemployment rate for those aged between 16 and 24 reached 22.3 percent, compared with 8.2 percent for people aged 25 to 34, while older age groups had even lower peaks during this time.