The worry of stagflation is spreading widely, as more disappointing economic data is released since the start of the rate hike. Regardless of the warning by authoritative scholars, the real side of the western world is still very strong. Inflation is certainly high, but stagnation is not yet seen. In the current context, to claim stagflation ahead of it appearing is equivalent to claiming stagnation has started. But unlike recession, which has a strict definition of two consecutive quarters of contraction, there is no commonly agreed definition of stagnation, not even about which variable to use.
Stagnation is a vague term that did not come from classical (old) theories. Before the 1970s, when population aging was not an issue, high growth was normal and “stagnant” growth was very rare. For terms invented in recent decades, they tend to be event driven. Often, stagflation is referred to as the situation seen in the U.S. in the 1970s, and stagnation is as seen in Japan in the 1990s; and one needs to “feel” the meaning of the terms from these events. There is no clear-cut definition of what stagnant means: If it means zero trend growth of real GDP like in Japan in the 1990s, then the U.S. in the 1970s would certainly not be the case….