WHAT IS Biflation

Biflation is the simultaneous existence of inflation and deflation in an economy. Biflation, while seemingly a paradox, results when inflation in commodity assets coexists with deflation in debt-based assets. This phenomenon typically occurs when a fragile economic recovery causes a central bank to open up the monetary spigots in a bid to stimulate the economy. This results in higher prices for certain assets such as energy and precious metals, and declining prices for leveraged assets such as real estate.


Biflation describes the state of the U.S. economy in the years after the Great Recession of 2007-2009. Unemployment and a moribund housing sector marked the tenuous economic recovery from 2009 onwards. This led the Federal Reserve unleashing trillions of dollars in monetary stimulus to jump-start the economy, while pledging to keep interest rates low. As a result, the economy saw deflation in sectors such as housing, which fell in many regions until early 2012.

Conversely, prices for gasoline rose from 2009 through 2012. The price of gold rose from 2009 through 2012, as well. Similarly, many other commodities markets saw rising prices over roughly the same period.

Causes of Biflation

Unprecedented market events caused biflation following the Great Recession.

As it relates to housing, prices rose in the early- and mid-2000s, fueled by government policy that promoted home ownership, low lending standards, and speculation. Meanwhile, the widely held belief that home prices couldn’t or wouldn’t decline spurred the sale of mortgage-backed securities, many of which also did not adequately account for a period of falling home prices.

When housing prices did indeed start to decline across the country in 2007, it hurt U.S. banks the most, as well as newer homeowners, many of which soon found they owed more than their homes were worth. This reduced the incentive for these homeowners make their mortgage payments, leading to loan defaults, foreclosures, abandoned homes, and a home-price decline of more than 40 percent in some regions of the country.

The U.S. government, struggling to keep the economy and the banking system afloat, unleashed multiple rounds of unprecedented market stimulus. This money greatly aided the economy. But rather than targeting the funding toward infrastructure projects, for instance, much of the funding went back into speculative asset classes, mainly the the stock market, including commodity stocks. Housing prices eventually recovered, but not nearly as quickly as liquid assets, such as stocks, which attracted investors due to a recovery in corporate earnings fueled by low interest rates.

Elsewhere in the world, demand for energy and metals from a rising India and China continued to boost prices for many commodities in the years immediately following the Great Recession, contributing to their price increases, and the to biflation.

It remains to be seen if biflation is so rare it will never happen again, or if it’s fairly likely if governments react with similar stimulus in the next major recession.