The distinctions between inflation and stagflation are subtle but significant. Inflation is the gradual rise in the prices of goods and services in an economy. Low and consistent inflation has historically been associated with low unemployment, low-interest rates, and a mixed investment environment.

A period of high inflation, high unemployment, and a stagnant economy is referred to as stagflation. Historically, the investing environment has been negative during stagflation, as higher input prices combined with lower sales generally translate to lower earnings per share for corporations.

Inflation refers to a sustained increase in the general price level of goods and services, reducing purchasing power. It is often caused by high demand, rising production costs, or excessive money supply. Central banks typically combat inflation by raising interest rates.

Stagflation, however, is a more severe economic condition combining stagnant growth, high unemployment, and rising prices. Unlike regular inflation, stagflation creates a paradox where prices rise despite weak economic activity. It is often triggered by supply shocks (e.g., oil crises) or poor monetary policies.

While inflation can occur in a growing economy, stagflation indicates economic distress, making it harder to control. Traditional anti-inflation measures (like rate hikes) may worsen unemployment, requiring balanced fiscal and monetary interventions.