stagflation

Economic condition (experienced in the USA and Europe in the 1970s) in which rapid inflation is accompanied by stagnating, even declining, output and by increasing unemployment. Its cause is often sharp increases in costs of raw materials and/or labour. It is a recently coined term to explain a condition that violates many of the suppositions of classical economics.

Under the Carter administration, interest rates skyrocketed, prices rose dramatically, and a deep recession occurred. The increase in OPEC petroleum prices was a major contributing factor.