Stagflation refers to an economy with little to no growth and higher than normal inflation. The U.S. has seen it happen before in the 1970s, when the so-called misery index, or the sum of inflation and unemployment, reached 19.9%. Currently, the country is at 11.5%.
Some analysts say stagflation happens when a sudden increase in the cost of oil reduces an economy’s productivity. Recently, in the wake of Russia’s attacks on Ukraine, oil prices have soared more than 40% this year so far, spiking above $100 a barrel.
Russia supplies around a third of Europe’s gas and oil imports and accounts for about 11% of world oil production, said Shane Oliver, head of investment strategy at fund manager AMP.
At a time when inflation has been hovering at a 40-year high, surging commodity prices, including oil, have been a wild card for investors.
The federal reserve is trying to combat these rising prices, but doing so during wartime could prove challenging.
Raising interest rates too quickly could lead to an economic slowdown that would send markets sharply lower.
The market is expected to remain short on oil supply for months to come, following sanctions on Moscow and a flood of divestment from Russian oil assets by major companies.
Reuters contributed to this report.