The inflation rates reflected in the consumer price and producer price indexes this month were bad enough. Each was in the 10% range. Some think inflation has peaked and that the Federal Reserve’s rate increases will guarantee this. However, there are more signs of rapidly rising inflation each day.
Ironically, the fact that unemployment has dropped to about 4% is a warning. It is an extraordinary rebound from the months just after the COVID-19 virus hit. Jobs have gone unfilled recently, which is another sign the job market is tight. This, in turn, has made it hard for businesses to keep wages at the level set over the past few years. Higher wages, by themselves, press inflation higher.
The price of oil, a major component of what Americans pay for day-to-day living, will not recede soon. The embargoes on Russian oil due to the invasion of Ukraine will keep the supply tight. Other large oil-producing nations, led by Saudi Arabia, refuse to increase output. The rising price of crude has been offset somewhat by a slowing economy in China, caused by COVID-19 lockdowns. This situation is temporary, though. China continues to be the world’s largest importer.
Housing prices in the United States have not started to level off. Year over year, prices have continued to rise by nearly 20%. Higher mortgage rates will dent these high prices, but that may not be for months.
Food prices continue to rise. Ukraine is among the largest producers of grain. Its crop yields could be chopped by over half due to the Russian invasion.
Finally, the log jam at major ports has worsened, bringing down the supplies of many goods to multiyear lows.
A few months ago, labor markets and gross domestic product made a recession in 2022 unlikely. The picture has changed considerably. The next two quarters may prove how difficult the new economy has become.
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