Stagflation. It was the “S word” of the 1970s.

It conjures up memories for Americans of a certain era of long lines at gas stations, closed factories, and President Gerald Ford’s ridiculed “Whip Inflation Now” buttons.

Stagflation can be the most bitter of economic pills. High inflation is combined with a weak labor market to create a toxic mixture that punishes consumers as well as confuses economists.

Many economists believed that such a horrible concoction was impossible for decades. They had long believed that inflation would only rise when there was strong economic activity and low unemployment.

Economists are now reaching back almost 50 years ago to find the disco era and the grim high-inflation, low-unemployment economic environment of the past half century. Stagflation is not something that anyone believes is possible. It is a long-term threat that cannot be ignored.

In remarks to reporters last week, Janet Yellen, Treasury Secretary, invoked the phrase.

Yellen stated that the economic outlook worldwide was “difficult and uncertain” and that higher food and energy prices were having stagflationary results, namely depressing output, spending, and increasing inflation around the globe.

The government reported that the economy contracted at 1.5% annually between January and March. The drop in economic strength was caused by two factors. One, a growing trade gap due to Americans’ desire for foreign products. Two, a slower pace of restocking businesses inventories following a large holiday season buildup.

Economists are generally in agreement that the U.S. economy is strong enough to avoid a recession. The problems are growing. Consumer prices are rising at an unprecedented pace due to disruptions in supply chains and Russia’s war on Ukraine.

Blindsided by rising inflation, the Federal Reserve and other central bankers are trying to catch up with them by raising their interest rates aggressively. They want to slow down growth to contain inflation and not cause a recession.

It is a difficult task. There is a widespread fear that the Fed will fail to realize the task and will shut down the economy, without inflicting a significant blow on inflation. This is reflected in the shrunken stock market prices.

Former Fed Chair Ben Bernanke said this month that inflation is still too high, but it’s coming down. In the next year or so, there should be a period where growth is low and unemployment is down a bit. However, inflation remains high.

Bernanke summarized his thoughts by saying, “You could call it stagflation.”

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What is STAGFLATION?

There is no statistical threshold or formal definition.

Chief economist at Moody’s Analytics Mark Zandi has a rough guideline: Stagflation is when the US unemployment rate reaches 5% and the consumer price index rises 5% or more over a year ago. The U.S. unemployment rate now stands at 3.6%.

Zandi’s threshold for stagflation in the European Union is different. He believes that a combination of 9% unemployment (in Europe, where there is more joblessness) would lead to stagflation.