Stagflation
 Stagflation is a period of rising inflation and stagnation in output,
which causes rising unemployment.
 Stagflation occurs when an economy experiences stagnant
economic growth. In other words, Stagflation is characterized by
slow economic growth and relatively high unemployment.
Stagflation was first recognized during the 1970s when many developed
economies experienced rapid inflation and high unemployment as a result
of an oil shock.
History of Stagflation
Initially, the term was believed to be oxymoron, i.e- stagnation and
inflation cannot co-exist. Keynesian economics argues that inflation and
unemployment cannot go hand in hand. In other words, there is trade-off
between inflation and unemployment. It was elaborated by A W Phillips
through his Phillips curve.

  This curve shows the relation between inflation and the unemployment rate in an economy. According to this theory economic growth comes with inflation.  Philip curve shifting to the right, indicating Stagflation, the situation was being seen in 1970s period

What causes stagflation?
 Rise in crude oil prices: In October 1973, the Organization of
Petroleum Exporting Countries (OPEC) issued an embargo against
Western countries. This caused the global price of oil to rise
dramatically by roughly four times, therefore increasing the costs of
production and contributing to a rise in unemployment. Crude oil is
an important intermediate goods for the economy.
 Rising prices reduced aggregate demand for goods: Inventory or
unsold products has risen, which reduce demand for labour and
other inputs. It caused unemployment.
 Imprudent macroeconomic policies: Developed countries
followed contractionary policies to contain inflation, which increase
the severity of recessionary pressure.