Ask the Piggy Bank: What is Stagflation

I expect to see more questions for the Ask the Piggy Bank feature as we head into continued economic uncertainty. Today’s question, which is especially timely, is this:

What is stagflation?

This word has been floating around for a few weeks, but it’s really becoming prominent as Fed chair Ben Bernanke denies that it is happening. Here is a basic look at what stagflation is:

Stagflation is the combination of two words: “stagnant” and “inflation.” It is used to describe economic conditions in which growth is slow (or virtually non-existent), even though inflation is in effect.

Stagflation is considered a phenomenon, since inflation is usually coupled with economic growth. The rise in prices, coupled with the lack of a requisite increase in spending power by consumers, is what makes stagflation so dangerous.