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Stagflation is a word that you will likely be hearing quite a bit about in the coming weeks and months so i thought it would be nice to provide a quick background as to what it truly is. So what exactly is stagflation? Investopedia defines stagflation as a condition of slow economic growth and relatively high unemployment, a time of stagnation, accompanied by a rise in prices or inflation.

Basically, stagflation occurs when the economy isn't growing, but prices are charging higher. In the 1970's oil prices fueled very high inflation rates in many countries, which occurred in tandem with econonomic growth that was non-existent. These periods in economic history have been rare in developed countries, but when they occur they are extremely harmful.

The word stagflation is a combination of the words stationary and inflation. These two words combine to make an extremely difficult period of policymaking for the folks at the Federal Reserve. It is a period where if the Fed fights inflation, the economy which is already not growing could turn into recession or even depression. On the other hand if the Fed decides to try to lower rates drastically, prices may jump higher and higher by the day and inflation could become a major problem in a hurry.

Economists usually watch for stagflation by measuring economic data on growth such as the employment number and the GDP vs. inflation data such as the consumer price index or the producer price index.

As I said stagflation is something that doesn't come around often in an economy like the American economy, but when it does come it can tie the hands of policymakers and provide for long-term economic issues.

Stay tuned to GrowYourFunds in the near future as we debate whether the economic period we are entering could be one of stagflation.