'Stagflation' is the bitterest of economic pills: high inflation mixes with a weak job market to cause a toxic brew that punishes consumers and befuddles economists.
For Americans of a certain age, it conjures memories of painfully long lines at gas stations, shuttered factories, and President Gerald Ford’s much-ridiculed “Whip Inflation Now” buttons.
Last week, the World Bank raised the specter of stagflation in sharply downgrading its outlook for the global economy. The Federal Reserve and other central banks, blindsided by raging inflation, are scrambling to catch up by aggressively raising interest rates. They hope to cool growth enough to tame inflation without causing a recession.
What can throw things off is a supply shock — say, a surge in the cost of raw materials that ignites inflation and leaves consumers with less money to spend to fuel the economy.Saudi Arabia and other oil-producing countries imposed an oil embargo on the U.S. and other countries that supported Israel in the 1973 Yom Kippur War. Oil prices jumped and stayed high. The cost of living grew more unaffordable for many. The economy reeled.
Critics also blame President Joe Biden’s $1.9 trillion stimulus plan of March 2021 for overheating an economy that was already hot. The Ukraine war made things worse by disrupting trade in energy and food and sending prices up.
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