strain1_ STEFANI REYNOLDSAFP via Getty Images_empty restaurant economic slowdown STEFANI REYNOLDS/AFP via Getty Images

Will US Inflation Lead to Recession?

While some economic indicators suggest that the recovery remains on track, others show that consumers may be stalling out, and that households and businesses are becoming increasingly pessimistic. The US Federal Reserve will have to respond more nimbly to economic softening than it did to strengthening in 2021.

WASHINGTON, DC – Rapid consumer price inflation in the United States is masking signs of an economic slowdown that could threaten the longevity of current growth. While nominal personal consumption spending grew by 3.4% between October 2021 and March 2022 (the most recent month for which data are available), accounting for higher prices shows that personal consumption spending was flat overall. And inflation-adjusted retail sales look even worse, having been flat since March 2021.

This slowdown is also showing up in public-opinion data. A CNBC-Momentive poll last month found that over half of Americans have already been dining out less, and that over one-third have cut back on driving or canceled a monthly subscription. Such spending reductions might grow in severity: 40% of respondents said that if higher prices persist, they will consider canceling a vacation; and 76% expressed concern that higher prices will force them to rethink their financial choices.

Reinforcing these findings, inflation has driven the University of Michigan’s consumer sentiment index to its lowest point in a decade – lower even than in the spring of 2020, when the COVID-19 pandemic caused an abrupt surge in unemployment and a severe economic contraction.

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