What is Stagflation?
Stagflation
Forex Trading Glossary
Quick Answer: Stagflation describes an economy stuck with weak growth and elevated inflation at the same time, leaving policymakers with few good options.
What is Stagflation?
Stagflation describes an economy suffering from stagnant growth and high inflation simultaneously. It is a nightmare for policymakers because tightening to fight inflation can deepen the slowdown.
Signs of Stagflation
- Weak growth: Falling GDP or contracting production data.
- Persistent inflation: Elevated CPI, PPI, and wage growth despite sluggish activity.
- Rising unemployment: Labor markets deteriorate as businesses cut costs.
Market Playbook
Historically, stagflation favors safe-haven currencies and commodity exporters that benefit from price spikes.
Trading During Stagflation
- Prioritize currencies with strong terms of trade, such as those tied to energy exports.
- Short currencies whose central banks appear trapped between growth and inflation goals.
- Combine macro hedges—like gold or inflation-linked bonds—with currency trades.
- Reduce leverage because volatility typically rises when policy clarity disappears.
Related Terms
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