What is the relationship between inflation and stagflation?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Basically, inflation is one part of stagflation.  But inflation, all by itself, is not the same thing as stagflation.

Inflation is when the general level of prices goes up in a country's economy.  This is not the price of one specific thing -- it is the average price of all things.

Stagflation is when high levels of inflation happen while the economy is "stagnant."  This means that the economy's real gross domestic product is not going up (in other words, the economy is in a contraction with stagnant or decreasing business activity).  Inflation with contraction is not usually supposed to happen, but sometimes it does.

So the relationship is that inflation is one of two things that make up stagflation, contraction being the second thing.

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