Stagflation is a term in macroeconomics used to describe a period of characteristic high inflation combined with economic stagnation, unemployment, or economic recession.

The Wikipedia entry is to me hilarious for all it's careful working around all the possibilities except, to me, the obvious one. Shhhhh. Maybe, just maybe, stagflation, and reverse stagflation in the 90s, has something to do with energy supplies....

Stagflation occurred in the economies of the United Kingdom in the 1960s and 1970s and the United States in the Nixon administration of the early 1970s as reported by various news and financial sites. The difficulty in fitting its existence within a Keynesian framework led to a greater acceptance of monetarist theories in the 1970s and 1980s. The pendulum has, to some extent, swung back in the other direction as monetarism had increasing difficulty predicting the demand for money and the long period of low inflation and high employment of the 1990s - a kind of reverse of stagflation.

As of 2004 global stagflation is making a comeback with the price of oil over $40 a barrel, the US government slowly increasing interest rates, and employment rates stagnant. Monetarists and Keynesian economics continue to have difficulty explaining the phenomena.

Supply-side economics emerged as a response to US stagflation in the 1970s. It largely attributed inflation to the ending of the Bretton Woods system gold standard in 1971 and the lack of a specific price reference in the subsequent monetary policies (Keynesian and Monetarism). As a response most governments today compile consumer price indexes as part of their monetary policy.

Supply-side economics asserts that the contraction component of stagflation was caused by the inflation induced rise in real tax rates (see bracket creep). In addition certain states in the USA had laws against nominal interest rates being above a certain level and in the midst of inflation this forced real interest rates to be negative. In some places this caused a collapse in finance for business.