Personal Finance Terms: What is Stagflation?

One of the terms that you might have heard recently is "stagflation." Alan Greenspan warned of stagflation not too long ago. But what does this strange word actually mean? Well, for many, it means that things may be heading in the direction of a recession.

Stagflation: A definition

Stagflation is a combination of the words "stagnant" and "inflation." It is an odd pairing, because inflation usually accompanies economic growth. But in cases where prices rise (inflation) and economic growth remains the same (stagnation), or even drops, you get a strange economic blend. And this is rarely good for your personal finances, no matter your portfolio.

Stagflation means that your wages are unlikely to increase, but you will still have to pay for rising prices on things like food, gas and consumer goods. And stagflation is not a good thing for investments, either, since it cuts into profits without offering requisite growth.

There is a great article on stagflation by Jeff Pietsch on Seeking Alpha. I encourage you to read it since, as Pietsch points out, "A long enough period of stagflation almost always precedes recession."

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recession, personal finance terms, Alan Greenspan