Stagflation and inflationary regimes: Long cycles in historical perspective

Stagflation periods are rare events characterized by the combination of opposite cyclical movements: the (late) upswing phase of inflation and the downswing phase of growth. Based on the phase shift in the inflation–output relationship, we distinguish two inflationary regimes where stagflation may occur, namely inflationary slowdown and inflationary recession. These two regimes, associated with the slowdown and recessionary downward phase of economic growth, respectively, reflect the out-of-phase and anti-phase relationship between long cycles in inflation and output growth. Using a long-cycle framework, we investigate the occurrence of stagflation by applying the peak-over-threshold method to distinguish high-inflation episodes from stagflation episodes within inflationary slowdown and inflationary recession regimes. In addition to the widely recognized global stagflation episode of the 1970s, we identify stagflationary episodes in several countries, including the UK and the US, during the pre-World War I high inflation period, which coincides with an inflationary slowdown regime. Regarding the recent inflationary upsurge, our framework suggests that the current inflation period cannot be classified as a stagflation episode.