Stagflation: Prices Rise, Growth Stalls, and Your Portfolio Has Nowhere Easy to Hide
5 min read
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5 min read
Imagine your salary stops growing, but the price of rice, fuel and rent keeps climbing. Your boss says business is slow. The shops say costs are up. You are squeezed from both sides.
That is the feeling behind stagflation. It is a rare mix of high inflation (prices rising fast) and stagnant growth (the economy barely moving), often with rising unemployment too.
This guide explains it in plain words. You will see how it happened in the 1970s, why it is so hard to fix, and which numbers to watch today.
The word is a blend of "stagnation" and "inflation". Stagnation means the economy is not growing. Inflation means prices go up over time.
Normally these two do not travel together. When the economy is weak, shops cut prices to attract buyers, so inflation cools. When the economy is hot, prices rise.
Stagflation breaks that pattern. Prices rise and growth stalls at once.
The term is usually credited to British politician Iain Macleod, who used it in the UK parliament in November 1965 to describe "the worst of both worlds" (source: Wikipedia and etymonline summaries of the Hansard record).
Central banks have one main tool: the interest rate. It helps with one problem at a time, but it makes the other worse.
In stagflation both problems are present. Whatever the central bank does helps one and hurts the other.
The United States lived through this. The Federal Reserve's own history calls the years 1965 to 1982 the Great Inflation. It describes inflation climbing past 14 percent in 1980, along with four recessions, two severe energy shortages and the first peacetime wage and price controls (Federal Reserve History).
Oil was a big trigger. In late 1973, Arab oil producers cut supply to countries that backed Israel. Oil went from about $2.90 a barrel before the embargo to $11.65 in January 1974 (Federal Reserve History, Oil Shock of 1973-74). That is roughly four times higher in a few months.
Oil is a cost for almost every business. Factories, trucks and farms all use energy. So higher oil pushed up prices everywhere, while higher costs squeezed profits and slowed hiring.
The cure was painful. Under chairman Paul Volcker, the Fed raised interest rates sharply from 1979. Inflation did fall, but only after a deep recession (summary of Fed and St. Louis Fed accounts).
Stagflation needs a special kind of shock. Most economic shocks push prices and growth in the same direction. A boom lifts both. A slump lowers both.
Stagflation usually needs a supply shock, something that makes it more expensive or harder to produce goods. Oil in 1973 is the classic case. Prices rise because supply is short, not because people are spending too much.
Today, many economies also keep inflation expectations anchored. That means people trust the central bank to keep prices steady, so they do not demand big raises or raise prices in panic.
No. The latest numbers do not match the pattern.
| Indicator | Latest figure | Source |
|---|---|---|
| Inflation, September 2026 (year on year) | 3.28% | BPS, via Kontan and Investortrust |
| Core inflation, September 2026 | 2.84% | BPS, via news summaries |
| GDP growth, Q2 2026 (year on year) | 5.29% | BPS, via Kontan and IDXChannel |
Inflation of 3.28% is moderate. Growth of 5.29% is still solid, even though it is lower than the 5.61% of Q1 2026. Stagflation would need inflation much higher and growth much weaker.
These figures came from news reports of the BPS release, retrieved 21 October 2026. Check the BPS site for the official release.
You do not need to be an economist. Three signs, appearing together, are the warning.
You can follow inflation, interest rates and the rupiah in one place on the NetWort macro dashboard.
Be careful with simple rules here. Each stagflation is different, and past patterns do not repeat on schedule.
Here is what is generally true, explained simply:
A quick example, using NetWort arithmetic with made-up numbers: you hold Rp100 juta in a deposit that pays 3% while prices rise 8%. After a year you have Rp103 juta. But what Rp100 juta bought before now costs Rp108 juta. Your money buys about Rp95,4 juta worth of the old basket. That is a real loss of about 4,6%.
This is why many investors look at their real return, not only the number on the statement.
Stagflation is a story about two numbers moving the wrong way together. Right now, neither looks extreme in Indonesia, but it is worth knowing the signs.
Open the NetWort macro page and look at inflation, the BI rate and the rupiah side by side. Then ask one question: is inflation rising while growth is slowing?