What is Stagflation and Why Do I Care?

I know you don’t like inflation and you learned to hate deflation. But I got some bad news for you. In less than 10 years, you are going into Stagflation.

Dictionary.com says that it is a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Investopedia says Stagflation occurs when the economy isn't growing but prices are - not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., the effects of inflation were considerably made worse because of this stagnation.

Now you are telling me that the government is making the car companies create better fuel efficient cars. Some of them don’t run on gasoline which is made from oil. Yea but as the economies in the US and other countries around the world pick up, the demand for oil will far exceed the supply of oil. This will cause the price of gas to double or triple what it is today. People will not be able to afford these new efficient cars because they will not have money or credit. The majority of people around the world will be driving the “gas hogs” that we have today. The price of gas and oil will make all goods and services go up.

We will not see full employment but the economy will start to come off the bottom. That is the time when Stagflation will come knocking on your door.

So what is the Consumer Price Index or CPI? We will find out next time.