What is stagflation? Plus, how it impacts families

You may have noticed your usual grocery bill is a lot higher than it used to be. Or maybe you’ve seen gas prices spiking, and you’re wondering why your allowance, paycheck, or family budget isn’t stretching as far. At the same time, it seems like companies aren’t hiring as much, and some are even laying people off.

The mix of rising prices and economic slowdown is called stagflation. And yes, it’s as uncomfortable as it sounds. We checked in with a few experts to help explain stagflation and talk about what families can do when it creeps into everyday life.

What is stagflation?

Stagflation is a mash-up of two words: stagnation and inflation. It happens when prices go up (inflation) while the economy slows down or even shrinks (stagnation). That means things cost more, but there’s less money going around.

“Stagflation is akin to being stuck in a traffic jam during a heat wave — nothing moves forward, and discomfort increases by the minute,” says Leon Turkin, financial expert and mortgage broker at Turkin Mortgage. “Prices rise without the usual push from employment or wage increases… That mixture really squeezes households.”

Simply put, you’re spending more to live your normal life, but the economy isn’t giving much back.

When has stagflation happened before?

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The idea of stagflation isn’t new. It showed up in a big way in the 1970s. Here’s what happened back then:

• Oil-producing countries cut back on supply, and gas prices climbed fast.

• Energy costs spiked, and heating your home got a lot more expensive.

• The cost of everyday essentials increased from groceries to supplies, and everything in between.

• Job growth slowed, and wages didn’t keep up.

This created a lot of financial stress for families. You might feel like this all sounds a little familiar to today’s current landscape.

So, are we experiencing stagflation right now?

The economy is not in stagflation today, but a few trends from the last few years are making people uneasy. Here’s why. During the pandemic, global supply chains got messy; every day things (such as baby formula, paper towels, even tech) either ran out or cost more than it used to. Then, the war in Ukraine drove up fuel and food prices, and those effects didn’t just disappear. Add in tariffs on top of that, and a lot of things that we import (like clothes, electronics, and household goods) got pricier, too. 

To cool inflation, the Federal Reserve (the central bank of the U.S., usually referred to as just “the Fed”) raised interest rates between 2022 and 2024. That slowed down spending, but it also made borrowing money harder and hiring for jobs less steady.

So far, the economy is still growing, but more slowly. Inflation is lower than it was in 2022, but it hasn’t completely cooled off. And, job growth hasn’t been consistent across industries.

“Stagflation is now a real concern because of the high inflation, slumping growth in parts, and global uncertainty,” says Turkin. “Wages actually are not rising fast enough to catch up, and job growth appears pretty uneven.”

What stagflation feels like in real life

Stagflation can hit families hard, especially when it’s already tough to budget for essentials.

“Stagflation feels like no matter how hard you work, it gets harder to keep up,” says Chris Heerlein, CEO of REAP Financial. “One of our clients, a single parent, told us her monthly expenses jumped nearly 20% over the past year, but her salary hasn’t changed. She’s dipping into savings just to keep up with food and utility bills.”

The impact of this can show up every day:

• Grocery bills are increasing week to week.

• Parents are dealing with hiring freezes or pay cuts.

• Gas prices are hard to predict.

• Savings accounts are not growing, or may even be shrinking.

It’s a frustrating loop that can make families feel like they’re working harder just to stay in the same place.

5 things families can do to navigate stagflation

Even though the idea of stagflation can sound intimidating, it doesn’t mean families are powerless. A few small, steady steps can help make day-to-day finances more manageable, no matter what is happening in the economy. Here are a few ideas that can make a big difference.

1. Create a budget that actually works for you

Budgets don’t have to be complicated. The real goal is to see where your money is going and where you might want to cut back. Whether you use an app, a notebook, or a spreadsheet, the act of tracking your spending can be eye-opening (and empowering!).

2. Rethink what’s “essential”

You don’t have to give up everything you love, but small changes add up. Swap name brands for generics, try a no-spend challenge or stream movies at home instead of going out.

“In my neighborhood, I’m seeing families really feeling the squeeze,” says Andrew Lokenauth, family finance expert and founder of BeFluentInFinance.com. “My sister's family started doing 'no-spend weekends' and switched to generic brands at the grocery store. They're saving about $400+ per month with these changes.”

3. Build an emergency fund, even a small one

If you’re able to put even a little away each month, it can add up. Ideally, you'd want to aim for an emergency fund that provides a cushion of three to six months’ worth of expenses, but even $100 can make a difference in a pinch. Try setting up your transfers to happen automatically to make it a habit that you don't have to think about every day.

4. Try something new to boost your income

If things feel tighter than usual, now might be the time to explore ways to bring in a little extra money. That could mean picking up freelance work or finding a flexible side gig. Teens can get creative, too. They can make some extra money by tutoring, babysitting, dog walking, or even reselling stuff they no longer use.

5. Keep talking about it at home

When money is tight, it’s easy for stress to creep in. That’s why talking openly about what’s going on financially, without shame or panic, can make a huge difference. What are the family’s top priorities right now? What can wait? What creative ideas do your kids have for saving or spending smarter?

“Open communication within the family about the financial situation is also crucial to ensure everyone is on the same page and working towards a common goal,” says Scott Bialek, co-founder of Hurst Lending.

Even when it feels like everything is more expensive and progress is slow, the economy eventually shifts. “Make smart adjustments to your spending, look for opportunities to increase your income, and remember that this too shall pass,” Lokenauth says. “Even if it feels uncomfortable right now.”

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