Stagflation is an economic term that indicates that the economic situation of a country is not quite right. It is the combination of inflation and economic decline and when they occur at the same time, it is something catastrophic.
This term was coined in 1965 by the British finance minister, Ian Mcleod. The creation of this word arose when the minister said that the United Kingdom was in a kind of "stagflation" where he combined the words inflation (inflation) and stagnation (stagnation).
Why does stagflation occur?
The causes and consequences of stagflation can be diverse. First, we have 3 factors that tell us that a country is in a critical phase: economic depression, negative growth rates, high unemployment, and rising prices. If a country suffers from these traits, it is because stagflation is about to appear or has already appeared.
Formally, we know that stagflation exists when GDP (gross domestic product) decreases for two consecutive quarters. This economic phenomenon is considered one of the worst, since it is difficult to correct and manage. Stagflation totally distorts markets and puts government policy-makers and their central banks in a very disadvantageous position.
Also this economic term leads to a recession in some sectors, but not all. In fact, this movement joins the growth of other sectors.
There is a dilemma in relation to stagflation, since monetary policy will have to choose between two options to try to solve this problem: either choose the measures normally used to increase economic growth, or policies to combat inflation that reduce activity by one. delicate situation (unemployment).
However, there are economic programs to combat this problem that have yielded good results, such as: labor flexibility, incentive business taxation, and many more.