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"Stagflock" Emerges: A New Economic Threat

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  Published in Science and Technology on Sunday, February 1st 2026 at 2:50 GMT by The Financial Times
      Locales: UNITED STATES, UNITED KINGDOM, IRELAND, LUXEMBOURG

Sunday, February 1st, 2026 - The global economic landscape is increasingly defined by a disconcerting new term: "stagflock." This portmanteau of "stagflation" and "stock market shock" encapsulates the growing fear that the world's largest economies are entering a period of prolonged slow growth punctuated by unpredictable surges in inflation, creating a particularly treacherous environment for businesses and consumers alike. While stagflation - the simultaneous occurrence of economic stagnation and high inflation - has haunted economic theory for decades, the "stagflock" scenario suggests a more erratic and potentially destabilizing version of this phenomenon.

For years, economists warned about the possibility of rising inflation following the unprecedented monetary and fiscal stimulus deployed during the COVID-19 pandemic. Initial predictions that inflationary pressures would be "transitory" have proven largely incorrect. Inflation, while showing some signs of moderation in late 2024, remains stubbornly persistent in many nations, driven by a complex web of factors beyond just pandemic-era policies. These factors include the ongoing geopolitical instability stemming from the war in Ukraine, increasingly fragile global supply chains, and, crucially, a lack of decisive resolution to underlying structural issues.

Bill Diviney, Senior Economist at RSM, warns, "We are at risk of stagflock." Diviney highlights the crucial point that combating inflation through traditional monetary policy - namely, raising interest rates - doesn't automatically guarantee a return to price stability. The risk of a severe recession is very real, but even if a recession does occur, it won't necessarily extinguish inflationary pressures. The dynamics at play suggest that inflation could surprise on the upside, continuing to challenge central banks and forcing them to maintain a restrictive monetary stance, further dampening economic growth.

This presents a particularly difficult dilemma for central bankers. Signe Neupart, Chief Economist at SEB, explains, "We've never faced a situation quite like this." The necessity to tighten monetary policy to curb inflation clashes directly with the desire to avoid tipping economies into recession. It's a "really difficult balancing act" with potentially significant consequences for global prosperity.

The roots of this stagflock risk are multifaceted. The initial stimulus packages, while successful in preventing a complete financial collapse during the pandemic, have undeniably contributed to current demand-pull inflation. Trillions of dollars injected into economies worldwide boosted consumer spending, but this demand has collided with constrained supply. Supply chain bottlenecks, initially caused by pandemic-related lockdowns and disruptions, have proved more resilient than anticipated. Geopolitical tensions, particularly the war in Ukraine, have further exacerbated these issues, sending energy and food prices soaring. Russia's role as a key energy supplier, and Ukraine's position as a major grain exporter, mean that disruptions in these sectors have global ramifications.

Looking forward, the situation is unlikely to improve dramatically in the short term. The lagged effects of prior stimulus are still working their way through the system, continuing to fuel demand. Furthermore, the restructuring of global supply chains - a necessary move to enhance resilience - is a costly and time-consuming process. Companies are increasingly adopting "friend-shoring" or "near-shoring" strategies, bringing production closer to home or to politically aligned nations. While this may reduce geopolitical risk, it is likely to lead to higher production costs and, consequently, higher prices for consumers.

The labor market also plays a crucial role. While unemployment rates remain relatively low in many developed economies, wage growth is outpacing productivity growth, contributing to inflationary pressures. This is particularly true in sectors facing labor shortages. The dynamic creates a wage-price spiral, where rising wages lead to higher prices, which in turn lead to demands for even higher wages.

Addressing the stagflock risk will require a coordinated and multifaceted approach. Central banks will need to carefully calibrate monetary policy, balancing the need to control inflation with the risk of triggering a recession. Governments, meanwhile, must focus on supply-side reforms to boost productivity, address labor shortages, and reduce reliance on vulnerable supply chains. Investing in renewable energy sources can also help to mitigate the impact of volatile energy prices. Ultimately, however, the world may have to "accept that inflation is going to be with us for a while," as Diviney suggests, learning to navigate an economic landscape characterized by slow growth and unpredictable price fluctuations.