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Will US inflation lead to recession?

Michael R. Strain
Michael R. Strain 5/25/2022 9:46 PM GMT+08  • 4 min read
Will US inflation lead to recession?
Consumers are stalling out, and that households and businesses are becoming increasingly pessimistic. / Photo: Bloomberg
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Rapid US consumer price inflation is masking a slowdown that could threaten the longevity of current growth. While nominal personal consumption spending grew by 3.4% between October 2021 and March, accounting for higher prices shows that personal consumption spending was flat overall. Inflation-adjusted retail sales look even worse, having been flat since March last year.

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

Stagnant spending and softening plans for future spending should not be surprising, considering that inflation has reduced real wages for most workers. So far, consumers have largely maintained current spending. But that won’t last forever, and it may not even last into the second half of the year.

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