A situation where economic output falls while prices continue to rise is called stagflation.
The word combines stagnation and inflation. Stagflation typically involves weak or falling economic growth, elevated inflation, and often rising unemployment. It creates a difficult policy problem because measures that restrain inflation can weaken demand further, while measures that support demand may intensify price pressure.
The term became widely associated with the 1970s, when several advanced economies experienced high inflation and poor economic performance after major oil-price shocks. Supply disruptions can produce this combination by raising firms’ costs while reducing the economy’s capacity to produce goods and services.
Stagflation is different from ordinary recession, where prices may rise more slowly or fall, and from hyperinflation, which describes extremely rapid inflation regardless of output performance. The exact threshold for calling an episode stagflation is not universally fixed.