by Alan Cordova

Bryan in Dallas is looking to make some money. He writes:

My co-worker is offering a $100 bet that in four years, we'll be suffering from "stagflation". Whether I take the bet or not, do you know where we can look today (and also in four years) to find out if stagflation is occurring? Maybe a Government agency or non-profit whose metrics are sound are reputable?

 

We here at Planet Money had to smile at the question because of what "stagflation" represents. The "stag-" part is "stagnation," or slow economic growth, while "-flation" is "inflation," the decline in the value of currency (and the corresponding rise in the price of goods and services). The result is the simultaneous occurrence of a recession or depression and unchecked inflation, which Keynesian economists once believed mutually exclusive.

Thus, if the economy underwent stagflation four years hence, Bryan would
still fork over $100, but it would buy a lot less.

How can they settle the bet? Finding the numbers for each half of "stagflation" is the easy part. Economic growth is most commonly represented by the real Gross Domestic Product (real GDP), the total value of goods and services produced annually within a country. The Bureau of Economic Analysis measures the U.S. GDP. For inflation, the Bureau of Labor Statistics measures the U.S. consumer price index (CPI), which uses a fixed "market basket" of goods and services that most consumers frequently purchase.

Unfortunately, the rest of the definition is unclear. Economists have not agreed upon the length of time an economy has to undergo simultaneous recession and inflation before it is officially in stagnation. For example, between July and September the U.S. real GDP decreased while the CPI increased (signifying higher prices). However, while economists generally agree that the U.S. economy experienced stagflation in 1973-74 and 1979-80, they will likely not begin labeling the current crisis until it has passed.