COLORADO SPRINGS — This week, economic expert Tatiana Bailey explains what “stagflation” is, and whether the U.S. economy is experiencing this phenomenon.

Stagflation refers to stagnant economic growth mixed with the effects of inflation. Bailey explains that, during stagflationary periods, often times it is coupled with high unemployment, such that many households are hit with job losses while at the same time dealing with unusually high prices.

Bailey believes this period of inflation is different, however. She says the global economy is at a crossroads of two kinds of transitions: first, an energy transition, specifically in developed economies, in which many are moving toward more renewable energy sources. The second transition Bailey sees occurring is a demographic transition: more advanced economies are seeing stagnant or even negative population growth, which is resulting in too few workers, particularly in Europe and the U.S.

The labor shortages have caused wage inflation, but because prices are at 40 year highs, real wages have actually declined 3% over the past year, causing demand destruction, Bailey says. This results in inflation existing alongside weakened demand, and therefore a weakened economy.

Typically recessions cool the labor market and therefore wage inflation, but with the demographic transition, that’s not as likely, said Bailey. Businesses are going to have to innovate their way out of this with automation, robotics, and other efficiencies.