You’ve heard of inflation (and understand how horrible it’s), however have you ever heard of “stagflation”? It’s additionally horrible. Merriam-Webster defines stagflation as “persistent inflation mixed with stagnant client demand and comparatively excessive unemployment.” Yikes.
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Some financial specialists assume that stagflation within the U.S. is on the horizon. Why? What indicators point out stagflation is coming and what are you able to do to financially put together for it?
A slowing GDP (gross home product) progress — when the financial system’s output begins to say no or contract — is an enormous crimson flag warning of stagflation. And that flag was waved earlier this yr. GDP decreased at an annual fee of 0.3% within the first quarter of 2025 (January, February and March), based on the advance estimate launched by the U.S. Bureau of Financial Evaluation [2].
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“The Federal Reserve now initiatives actual GDP progress at 1.4% for 2025, down from 1.7% in its March projection,” mentioned Alex Tsepaev, CSO at B2PRIME Group. “The OECD and World Financial institution have additionally downgraded U.S. progress expectations as a result of commerce tensions and coverage uncertainty. Moreover, the Convention Board’s Main Financial Index (LEI) declined once more in Could, marking a 2.7% drop over the previous six months, which is approaching recessionary territory.”
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Again to the phrase so intently tied to “stagflation” — inflation. A key signal of stagflation is persistent inflation. That is additionally referred to as “sticky inflation,” and we see it hover round necessities like meals and gas.
“These classes are much less delicate to rate of interest hikes, which makes them persistently costly,” mentioned Dane Could, principal and co-founder at DePaolo & Could Strategic Wealth. “These are non-discretionary bills that pressure family budgets. When customers are compelled to spend extra on necessities, they reduce elsewhere. That slows financial progress and makes inflation extra painful as a result of it’s tied to requirements reasonably than luxurious or non-compulsory spending.”
One other key warning signal of stagflation is a weakening labor market. With this, we see a lower in job openings, layoffs and rising unemployment charges. Proper now, the labor market is displaying indicators of weakening.
“Current jobs information has persistently missed economists’ expectations,” mentioned Jake Falcon, CRPC, CEO at Falcon Wealth Advisors. “Employers added far fewer jobs in February than in January, and unemployment claims have risen. This softening labor market is a traditional precursor to financial stagnation.”