Stagflation, as economists call it, is an increase in the general price level (inflation) during a period of anemic economic growth (stagnation) and high unemployment. Obviously, this definition has some ambiguity to it, but let us see if we can attribute any of these characteristics to today's economy.
Let's start with inflation. Originally, the Federal Reserve believed the 2011 inflation rate would stabilize between 1.3% and 1.7%. Just today, however, the Fed increased its projected 2011 inflation rate to 2.1%-2.8%. Obviously, that's a substantial increase, but it is in the typically targeted rate of 2%-3%.
As for economic growth, the Fed today downgraded its forecast for GDP growth from 3.8% to 3.1%-3.4%. I don't believe that is considered to be anemic, but it certainly isn't all that great, especially given that the Fed has stated the USA will maintain a high unemployment rate of 8.4%-8.7% for the rest of the year.
(Here's the article for all of the aforementioned Federal Reserve forecasts: http://www.bbc.co.uk/news/business-13213424).
So, in terms of stagflation, the USA may be able to squeak through this deep recession without getting hit by a stagflation crisis.
I would like to point out the role oil prices will play in all of this. While difficult to quantify its impact, it is no stretch to believe that significant oil price increases (it is being said that $6 per gallon is not out of the question)
could push the fragile economic recovery into a stagflation episode. Essentially, rising oil prices will contribute to widespread price increases due to the fact that gasoline is used to transport or produce pretty much everything in the country; these price increases will, in turn, lead to consumers cutting back on expenditures. This decrease in demand will lead to more unemployment and a decrease in GDP growth. It is a vicious circle and I just hope we avoid it completely.
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