First, the reasons for stagflation
Due to the negative supply shock, the economic production capacity is reduced. For example, the oil crisis led to an increase in oil prices, an increase in production costs and a decrease in profits, which led to an increase in commodity prices and a slowdown in the economy. Another reason is improper economic policies. For example, the central bank allows the money supply to grow excessively, and the government regulates the commodity market and the labor market excessively. Stagflation is caused by cost-driven inflation. Cost-driven inflation occurs under certain pressure or circumstances, which makes the cost rise; These factors may be government policies (such as tax increase) or simple external factors.
Second, the form of expression
For a long time, the economy of capitalist countries has generally been characterized by rising prices: the unemployment rate is low or falling during the economic boom, and the price is falling during the economic recession or depression. Accordingly, western economists believe that unemployment and inflation cannot happen in the same direction. However, since the late 1960s and early 1970s, major western capitalist countries have experienced economic stagnation or recession, mass unemployment, serious inflation and rising prices. Western economists call this economic phenomenon stagflation.
To sum up, economic stagflation is a serious inflation. Because of normal inflation, no matter how much the price rises, the economy is overheated, which means that although it is unreasonable, it is still growing. Stagflation refers to economic stagnation or even retrogression in the context of soaring prices. So on the one hand, prices are soaring, on the other hand, people's income is still decreasing.