Stagflation is defined as the coexistence of inflation with a situation of economic stagnation or decline.
The term arose in the United Kingdom in 1965, when the Minister of Finance Ian Mc Leod stated that the country was in a situation of "stagflation", mixing the words inflation and stagnation for this purpose.
This is a relatively new phenomenon, due, according to Paul Samuelson (Nobel Prize in Economics 1970) to the emergence of protective tools such as the minimum wage or unemployment benefits. These instruments vary the effects of the recession on consumption and therefore on price behavior.
This is a very serious and complex situation for the economy, because in a context of rising prices, the economy should grow and jobs should be created. But when there is stagflation, the stagnation of the economy leads to an increase in unemployment. A very dangerous spiral is formed, as price increases accelerate and the middle and lower classes lose purchasing power and poverty rates rise.
The measures that have worked best to combat stagflation so far have been to improve corporate taxation while implementing measures to make the labor market more flexible, to liberalize trade, measures to protect competition and greater investment in training and education.