Explainers
What Is Stagflation?
Prices up, jobs down, growth stuck: the worst of both worlds, and the 1970s had it for ten years.
By Joel Perkes · · 11 min read
Picture a taxi stuck in traffic. The car hasn’t moved in ten minutes, the meter keeps clicking up anyway, and the radio is reading out the news about the traffic. You are going nowhere, and it is getting more expensive to go there. That is stagflation. In the 1970s a whole country rode in that taxi for about a decade, and the kids in the back never stopped asking how much longer.
Stagflation is high inflation and a stagnant economy at the same time: prices rise quickly while growth stalls and unemployment climbs. It usually starts with a supply shock, such as oil suddenly costing far more, made worse when the central bank keeps money loose. The best known case is the US in the 1970s, when prices doubled in under eight years and unemployment reached 9% in 1975 and 10.8% in 1982.
Know the 1970s already? Skip to what savings, stocks and gold did.
What is stagflation?
It is two bad things that were supposed to take turns arriving together. Normally, when the economy is weak, people lose jobs, spend less, and prices cool off. When the economy runs hot, jobs are plentiful and prices climb. Economists drew this as a seesaw between unemployment and inflation, and for years policymakers planned around it: accept a little more of one to get a little less of the other.
Stagflation is when both ends of the seesaw go up at once. The British politician Iain Macleod gave it a name in the House of Commons on November 17, 1965, describing “a sort of ‘stagflation’ situation,” and calling it “the worst of both worlds.” He was talking about Britain, but the word was ready and waiting for the decade that came next.
Back to the taxi. A normal recession is a traffic jam where the meter slows down too. A boom is an open highway where the meter runs fast but you’re getting somewhere. Stagflation is the jam with the meter on fast forward, which is the one ride nobody books on purpose.
Into the weeds: the seesaw that broke
The trade-off between inflation and unemployment is called the Phillips curve, after an economist who found it in a century of British wage data. In the late 1960s Milton Friedman and Edmund Phelps argued it would not hold for long: once people expect inflation, they build it into wages and prices, and the curve shifts. The 1970s proved them right. Inflation kept rising while unemployment rose too, and the curve stopped being a reliable menu.
What causes stagflation?
Usually two things at once: a shock that makes something everyone needs suddenly scarce, and money that stays loose while it happens.
The shock in 1973 was oil. On October 19, 1973, during the Yom Kippur War, Arab oil producers announced an embargo on the United States and other countries that had backed Israel. The price of West Texas crude went from $3.56 a barrel in December 1972 to $10.11 in January 1974, according to FRED’s oil price series, about 2.8 times in thirteen months. Then the 1979 Iranian revolution did it again, and oil reached $39.50 in 1980. Everything that moves by truck, which is nearly everything, got more expensive, while businesses paying those bills hired fewer people. That is the stagnation half.
The inflation half came from what happened next. Rather than let a recession run, the Federal Reserve kept money easy, and workers who saw prices rising asked for raises to keep up. Businesses passed the raises on as higher prices, workers asked again, and the two chased each other around the block. Economists call it a wage-price spiral. Everyone else called it the grocery bill.
Or in taxi terms: the oil shock caused the traffic jam. The loose money is the driver taking a longer route to make it go faster, and the meter loved every minute of it.
How bad was stagflation in the 1970s?
Bad enough that prices doubled in under eight years. The consumer price index was 42.7 in January 1973 and passed 85.4 in November 1980, according to the Bureau of Labor Statistics on FRED. A $10 bag of groceries became a $20 bag, and the bag didn’t get any bigger.
Meanwhile the economy shrank. Real GDP fell in five of the seven quarters from mid-1973 to early 1975. Unemployment, 3.5% at the end of 1969, hit 9.0% in May 1975, with inflation still over 9%. After the second oil shock, inflation peaked at 14.6% in March 1980.
An economist in the 1970s added the inflation rate to the unemployment rate and called it the misery index, which is the most honest name any economic statistic has ever had. It bottomed at about 5.8 in late 1965. It peaked at about 21.9 in May 1980, with inflation at 14.4% and unemployment at 7.5%. In September 2026 it was about 7.9.
How did stagflation end?
With a very expensive cure. The Fed under Paul Volcker, chairman from 1979, decided to stop the meter by making money scarce, and pushed short-term interest rates to levels no one alive had seen. The federal funds rate averaged 19.1% in June 1981.
Mortgages followed. The average 30-year mortgage rate reached 18.63% in October 1981, according to Freddie Mac’s survey. On a $250,000 loan that is about $3,896 a month, against about $1,704 at the 7.24% rate of late October 2026. Over 30 years you’d pay about $1.4 million for a $250,000 loan, paying for the house roughly five and a half times, like buying one house and making payments on half the street. The bank got the whole block. You got one front door, eventually.
It worked, and it hurt. Unemployment rose to 10.8% in late 1982, the highest since the monthly figures began in 1948. But inflation fell to 3.8% by December 1982. The taxi finally got out of traffic by driving through a wall. It worked, and everyone in the back seat felt it.
What did savings, stocks and gold do during stagflation?
Here is roughly what $10,000 did from January 1973 to the middle of 1982, measured in 1973 dollars so that inflation is already taken out:
| Where the $10,000 sat | Worth in 1973 dollars by mid-1982 |
|---|---|
| A savings account paying 5% | about $6,900 |
| The S&P 500, dividends reinvested | about $6,200 |
| Gold, 1973 average price to 1982 average price | about $17,800 |
The savings account did exactly what it promised. It paid 5% a year, on time, every year, and still lost nearly a third of its buying power, because prices rose faster than 5%. It’s a 5% raise in a year the rent went up 10%. The meter versus your allowance, and the meter always wins that one.
Stocks did worse after inflation. The S&P 500 stood at about 118 in January 1973 and about 109 in July 1982, according to Robert Shiller’s data, while prices more than doubled. Counting reinvested dividends, the real loss was about 38%. A whole decade of owning America’s biggest companies, and you could buy less with it at the end.
Gold went the other way. Its yearly average rose from about $58 in 1972 to about $615 in 1980, roughly 10.6 times, while prices roughly doubled. That is about five times more gold-measured buying power. Our piece on gold in the 1970s tells that story in detail.
Did gold always go up during stagflation?
No, and here is the fair objection, stated plainly. Gold’s yearly average fell from about $615 in 1980 to about $376 in 1982, a drop of about 39%, while unemployment was still climbing toward 10.8%. The cure for stagflation, very high interest rates, was bad for gold, because cash in the bank suddenly paid more than inflation and gold pays nothing. Anyone who bought at the 1980 top waited decades to get back to even after inflation.
The answer is in what the decade was actually like for most people. Through the long middle of it, while oil, groceries and rent climbed and the paycheck didn’t keep up, gold kept its value when savings and stocks lost a third or more of theirs. It is the one asset in the table that no government could print more of to pay for the oil, and no company could cut a dividend on. Gold doesn’t get you out of traffic. It’s the passenger who packed his own sandwiches: still stuck, but not paying airport prices.
Did other countries have stagflation?
Almost everyone, because almost everyone bought oil. Peak yearly inflation in the 1970s and early 1980s, from World Bank data on FRED:
| Country | Peak inflation, 1970 to 1982 | In 2025 |
|---|---|---|
| Mexico | 58.9% (1982) | 3.8% |
| India | 28.6% (1974) | 2.4% |
| United Kingdom | 24.2% (1975) | 3.9% |
| Japan | 23.2% (1974) | 3.2% |
| Ireland | 20.9% (1975) | 2.2% |
| New Zealand | 17.2% (1980) | 2.8% |
| Australia | 15.4% (1974) | 2.9% |
| South Africa | 15.3% (1981) | 3.2% |
| France | 13.6% (1974 and 1980) | 0.9% |
| United States | 13.5% (1980) | 2.6% |
| Canada | 12.5% (1981) | 2.1% |
| Netherlands | 10.2% (1975) | 3.2% |
| Switzerland | 9.8% (1974) | 0.2% |
| West Germany | 7.0% (1973) | 2.2% |
Britain, where the word was coined, got the worst of the big economies: 24.2% in 1975. West Germany and Switzerland, whose central banks were the strictest about the money supply, got the mildest. Same oil, same traffic jam, very different meters.
Is the US in stagflation now?
Not by the usual definition, going by the latest figures. Consumer prices were up 3.7% in the year to September 2026, which is uncomfortable, but unemployment was 4.2% and the economy grew at a 3.4% annual rate in the third quarter, according to the Bureau of Economic Analysis on FRED. Stagflation needs the stagnation half too.
One 1970s ingredient is on the shelf, though. Oil averaged about $97 a barrel in September 2026, and prices excluding food and energy rose 2.6% over the year, about a point less than the headline. Energy is doing most of the pushing, the same way it did in 1973. The taxi isn’t stuck. The meter is just running a little fast, and the traffic report is worth listening to.
Sources
- Consumer prices (CPI-U), core prices and unemployment: FRED CPIAUCSL, CPILFESL and UNRATE (Bureau of Labor Statistics), read October 31, 2026.
- Real GDP growth by quarter: FRED A191RL1Q225SBEA (Bureau of Economic Analysis).
- Oil price, West Texas Intermediate, monthly: FRED WTISPLC.
- Federal funds rate: FRED FEDFUNDS. 30-year mortgage rate: Freddie Mac via FRED.
- S&P 500 prices, dividends and real total return: Robert Shiller, Online Data.
- Gold yearly averages: the site’s gold price by year data.
- Inflation by country: World Bank consumer price inflation via FRED (series FPCPITOTLZG followed by each country’s code, for example GBR).
- Iain Macleod’s 1965 remark and the Phillips curve: Wikipedia, Stagflation. The 1973 embargo: Wikipedia, 1973 oil crisis.
Figures read October 31, 2026. Derived figures (the doubling date, the misery index, the mortgage payments, the $10,000 table and the gold ratios) are our own arithmetic from the sources above. The savings line assumes 5% a year compounded annually.
Questions people actually ask
What is stagflation in simple terms?
Stagflation is when prices rise quickly while the economy stalls and unemployment rises, all at the same time. It combines inflation with stagnation, the two problems that were long thought to move in opposite directions.
What causes stagflation?
Usually a supply shock that makes something essential much more expensive, such as the oil embargo of October 1973, combined with loose monetary policy and a wage-price spiral that keeps prices rising even as the economy weakens.
When was the last stagflation in the US?
The clearest case ran from about 1973 to 1982. Consumer prices doubled between January 1973 and November 1980, unemployment reached 9.0% in May 1975 and 10.8% in December 1982, and inflation peaked at 14.6% in March 1980.
How did the US end stagflation?
The Federal Reserve raised interest rates sharply from 1979, with the federal funds rate averaging 19.1% in June 1981. Inflation fell to 3.8% by December 1982, but unemployment rose to 10.8% along the way.
Who coined the word stagflation?
The British politician Iain Macleod is generally credited. In the House of Commons on November 17, 1965, he described “a sort of ‘stagflation’ situation” and called it “the worst of both worlds.”
What is the misery index?
The misery index adds the inflation rate to the unemployment rate. In the US it peaked at about 21.9 in May 1980, when inflation was 14.4% and unemployment 7.5%. In September 2026 it was about 7.9.
Is gold a good hedge against stagflation?
In the 1970s it was: gold’s yearly average rose about 10.6 times from 1972 to 1980 while prices roughly doubled. But gold fell about 39% from 1980 to 1982 as interest rates rose, so the timing mattered a great deal. This is history, not a prediction or investment advice.
How did stocks do during stagflation?
Poorly after inflation. From January 1973 to July 1982 the S&P 500 lost about 38% of its buying power even with dividends reinvested, according to Robert Shiller’s data.
Is the US in stagflation now?
Not by the usual definition, as of the latest figures. Consumer prices rose 3.7% in the year to September 2026, but unemployment was 4.2% and the economy grew at a 3.4% annual rate in the third quarter of 2026.
