Stagflation Explained: What It Means for Your Money
Inflation rising. Growth flatlining. Central banks stuck between two bad options. Stagflation broke 1970s portfolios. The exact same ingredients are quietly back on the table.
Peak UK CPI inflation during the 1970s stagflation
Inflation took over a decade to settle. Unemployment rose throughout. The textbook case nobody wants to repeat.
Key takeaways
Stagflation is when inflation stays high while the economy stagnates and unemployment rises - the worst of both worlds.
It last hit hard in the 1970s, driven by oil shocks and loose monetary policy. Today, trade wars and conflict in the Middle East create similar conditions.
Central banks struggle with stagflation because raising rates fights inflation but deepens the recession, and cutting rates fights recession but fuels inflation.
The best defence is a diversified portfolio, low personal debt, and a spending buffer that lets you ride out a period where prices rise and pay does not.