Why Stagflation Is Back on Some Traders’ Radars

If 2020 was a year for worrying about pandemic-induced economic collapse and 2021 was when inflation became a focus of anxiety, Russia’s invasion of Ukraine has added to fears that the world may be revisited in 2022 by something not seen much since the 1970s: stagflation. At the very least, the war and the jump in energy prices its onset compounded are likely to complicate the job of central banks aiming for a “soft landing” -- damping down inflation without tipping an economy into recession.

Stagflation is a portmanteau combining the words stagnation and inflation. It describes an economy with little to no growth and higher-than-normal inflation rates. Iain Macleod, a British politician, coined the term in 1965. Plenty of economists once doubted stagflation was possible. Unemployment and inflation typically move in opposite directions, since price levels are usually driven by an economy’s level of demand.