In December 1974, US prices were 12.3% higher than a year earlier. By May 1975, the Unemployment Rate had climbed to 9.0%. The economy was producing less than a year before in every quarter from mid-1974 to mid-1975.
That mix of rising prices, a shrinking economy and rising joblessness has a name: stagflation. Here is what it is, why it happens, how the 1970s compare with 2022 and where the US stands now, using official data.
What is stagflation? Stagflation is high inflation combined with weak or falling economic growth and rising unemployment. The word joins "stagnation" and "inflation".
The US had all three in the 1970s. Inflation peaked at 12.3% in December 1974, while the Unemployment Rate rose to 9.0% by May 1975.
2022 was different. Inflation hit 9.1% in June 2022, but the Unemployment Rate was 3.6% and the economy was still growing.
US shares lost buying power in the 1970s stagflation. Over the decade, the S&P 500 index of large US companies returned 5.8% a year with dividends counted, while prices rose 7.4% a year.
What is stagflation?
Stagflation has three parts. All three must show up together:
High inflation. Prices across the economy rise fast. We explain inflation in What Is Inflation?
Weak or falling growth. Real Gross Domestic Product (GDP), the value of everything the economy produces after stripping out price rises, grows slowly or shrinks. See What Is GDP?
Rising unemployment. The Unemployment Rate is the share of people who want a job and cannot find one. See What Is the Unemployment Rate?
There is no official threshold for stagflation. In the US, a recession has official dates, which we cover in What Is a Recession? Stagflation has none.
The word comes from the UK. On 17 November 1965, the Conservative politician Iain Macleod told the House of Commons: "We have a sort of 'stagflation' situation." He meant inflation and stagnation at the same time.
What causes stagflation?
Demand-pull inflation comes from strong demand. Spending runs ahead of what the economy can make. Stagflation is different.
Stagflation can start with a supply shock. A key input, such as oil, suddenly costs more or runs short. Firms raise prices. They also produce less, so they need fewer workers. This is cost-push inflation, one of the types covered in Types of Inflation.
The 1970s had one. On 19 October 1973, Arab oil producers began an embargo on the United States. The price of oil nearly quadrupled, from $2.90 a barrel to $11.65 in January 1974, according to the Federal Reserve's history site.
Stagflation also puts a central bank in a bind. Raising interest rates fights inflation, but it can push unemployment higher. Cutting rates supports jobs, but it can feed inflation. The Federal Reserve is asked to pursue both stable prices and maximum employment, as What Does the Fed Do? explains.
The 1970s showed the cost. The Fed pushed the Effective Federal Funds Rate, the rate banks charge each other for overnight loans, to a monthly average of 19.1% in June 1981. Inflation fell to 3.8% by December 1982. By then, the Unemployment Rate was 10.8%.
US inflation and unemployment since 1965
Source: FRED (CPIAUCNS, UNRATE, USREC); YX Insights
The chart shows inflation on the Consumer Price Index (CPI), the cost of a basket of goods and services bought by US households, against the Unemployment Rate. Grey bands mark US recessions.
In the 1970s and early 1980s, the two lines rose together twice. Inflation peaked at 12.3% in December 1974, then the Unemployment Rate peaked at 9.0% in May 1975. Inflation peaked again at 14.8% in March 1980. The Unemployment Rate reached 10.8% in November 1982.
In 2022, the lines moved apart. Inflation peaked at 9.1% in June 2022, the highest since November 1981. The Unemployment Rate was 3.6% that month. It ended the year at 3.5%.
The 1970s vs 2022: inflation, unemployment and growth
Measure | 1973 to 1975 | 1979 to 1982 | 2022 | Latest (2026) |
|---|---|---|---|---|
Highest inflation (CPI, on a year earlier) | 12.3% (Dec 1974) | 14.8% (Mar 1980) | 9.1% (Jun 2022) | 3.4% (Aug 2026) |
Unemployment Rate, start to end | 4.6% (Oct 1973) to 9.0% (May 1975) | 5.6% (May 1979) to 10.8% (Nov 1982) | 4.0% (Jan 2022) to 3.5% (Dec 2022) | 4.4% (Sep 2025) to 4.2% (Sep 2026) |
Weakest real GDP growth, on a year earlier | −2.3% (Q1 1975) | −2.6% (Q3 1982) | +1.2% (Q4 2022) | +2.2% (Q2 2026) |
Highest misery index | 19.9 (Jan 1975) | 22.0 (Jun 1980) | 12.7 (Jun 2022) | 7.5 (Aug 2026) |
Source: FRED (CPIAUCNS, UNRATE, GDPC1); YX Insights
The table sets the two stagflation waves of the 1970s and early 1980s against 2022 and the latest data. Growth here is real GDP against the same quarter a year earlier.
In 1974 to 1975, all three measures moved the wrong way. The Unemployment Rate nearly doubled, from 4.6% to 9.0%. Real GDP was 2.3% smaller in the first quarter of 1975 than a year earlier.
In 2022, only inflation was high. The Unemployment Rate fell from 4.0% in January to 3.5% in December. Real GDP was still 1.2% bigger than a year earlier in its weakest quarter. So 2022 had high inflation, but no stagnation.
The misery index: inflation plus unemployment
The misery index adds the inflation rate to the Unemployment Rate. The economist Arthur Okun of the Brookings Institution devised it in the 1970s. A high reading means both problems at once.
Source: FRED (CPIAUCNS, UNRATE, USREC); YX Insights
The chart shows the misery index each month since January 1948. Its mean over that time is 9.2.
The highest reading was 22.0 in June 1980, from 14.4% inflation plus 7.6% unemployment. The 1970s peak came in January 1975, at 19.9. In June 2022, the index reached 12.7.
The index has limits. It counts both parts as equally bad. The April 2020 reading of 15.1 came almost entirely from unemployment, during the pandemic lockdowns, with inflation at 0.3%. So a high reading is not always stagflation.
Source: Robert Shiller, Yale; YX Insights
The chart follows $100 put into the S&P 500 at the end of 1969, with dividends reinvested. The blue line is the dollar value. The orange line is the same money after inflation, in end-1969 dollars.
By December 1979, the $100 had grown to $176 before inflation. After inflation, it was worth $87. Shares returned 5.8% a year, while prices rose 7.4% a year. That left a loss of 1.4% a year in buying power.
The worst point came in December 1974. After inflation, the $100 was worth $63.
With dividends counted, shares fell 50.1% after inflation from January 1973 to December 1974. They did not regain the January 1973 level until January 1985. We explain falls like this in What Is a Drawdown?
Is the US in stagflation now?
The latest official figures show one of the three parts:
Inflation is above target. CPI inflation was 3.4% in August 2026, up from 2.4% in January 2026. The Fed's 2% goal is set on a second measure, the Personal Consumption Expenditures (PCE) Price Index. Headline PCE inflation, with food and energy, was 3.4% in August 2026. Core PCE inflation, which leaves them out, was 3.0%.
Unemployment is not rising. The Unemployment Rate was 4.2% in September 2026, down from 4.4% a year earlier. That matches Fed officials' median estimate of where the Unemployment Rate settles in the long run, 4.2%.
The economy is growing. Real GDP was 2.2% bigger in the second quarter of 2026 than a year earlier, the measure the table uses. Growth against the first quarter, scaled up to a full year, was also 2.2%.
On 16 September 2026, the Fed raised its target range for the Federal Funds Rate by 0.25 points, to 3.75–4.00%. It cited inflation. Its officials' median projections that day were 2.3% GDP growth for 2026 and a 4.1% Unemployment Rate at the end of 2026. They saw headline PCE inflation at 3.7% for 2026.
The misery index stood at 7.5 in August 2026, from 3.4% inflation plus the August Unemployment Rate of 4.1%. That is below its mean of 9.2 since 1948. What would change the read is a rise in unemployment and a fall in output while inflation stays high.
How to read stagflation risk
A few checks help:
Read the three measures together. High inflation alone is not stagflation, as 2022 showed.
Watch energy prices. The 1973 oil embargo shows how a supply shock can start there. In August 2026, CPI energy prices were 16.3% higher than a year earlier.
Look at real returns. In stagflation, the dollar value of savings can rise while their buying power falls.
Note the next data. The first estimate of third-quarter 2026 GDP is due on 29 October.
Stagflation is high inflation plus a stalled economy with rising unemployment. The US had it in the 1970s, when shares lost buying power. In 2022 and in the latest data, inflation was above target while jobs and growth held up.
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Common questions about stagflation
What is stagflation in simple terms?
Stagflation means prices rise fast while the economy stalls and more people lose their jobs. It joins two words: stagnation and inflation. The US had it in the 1970s. In December 1974, prices were 12.3% higher than a year earlier. By May 1975, the Unemployment Rate had reached 9.0%.
What causes stagflation?
Stagflation can start with a supply shock, such as a sudden jump in the price of oil. Firms raise prices and produce less at the same time, so they need fewer workers. In 1973 to 1974, an oil embargo nearly quadrupled the oil price, from $2.90 a barrel to $11.65. US inflation and unemployment then rose together.
Is the US in stagflation now?
Not on the latest data. Inflation is above the Fed's goal, but the other two parts are missing. CPI inflation was 3.4% in August 2026, above the Fed's goal. The Unemployment Rate was 4.2% in September 2026, down from a year earlier. Real GDP grew at an annual rate of 2.2% in the second quarter of 2026.
What is the misery index?
The misery index is the inflation rate plus the Unemployment Rate. Arthur Okun of the Brookings Institution devised it in the 1970s. Its highest US reading was 22.0 in June 1980. Its mean since 1948 is 9.2. In August 2026, it stood at 7.5, from 3.4% inflation plus 4.1% unemployment.
How do stocks perform during stagflation?
In the 1970s, US shares lost buying power. From the end of 1969 to the end of 1979, the S&P 500 returned 5.8% a year with dividends counted, while prices rose 7.4% a year. After inflation, $100 shrank to $87. At the worst point, in December 1974, it was worth $63.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.