Stagflation refers to an economic situation where high unemployment and rising prices (inflation) occur simultaneously. This is a problematic scenario because normally, inflation and unemployment are thought to have an inverse relationship (when one goes up, the other tends to go down). However, stagflation is a condition where both are high at the same time, making it difficult for policymakers to address.

This was notably experienced during the 1970s oil crisis, where supply shocks led to high inflation and rising unemployment in many economies.