Raging inflation has been problem No. 1 for the economy this year, with consumer prices soaring 7.7% in the 12 months through October.
You’ve probably noticed this yourself when you’re at the grocery store, at the gasoline pump, and particularly when you're paying your rent or trying to buy a new house.
As for what caused the inflation, “the main factor is demand exceeding supply for a whole host of goods in the U.S. economy,” Amitrajeet Batabyal, professor of Economics at Rochester Institute of Technology, said in a WalletHub study on inflation. WalletHub is a personal finance web site.
“This rising demand was caused, in part, by Uncle Sam providing massive stimulus funds to aid Americans who would otherwise be in considerable financial distress,” he said.
The government shelled out $5 trillion to households and others to help cushion the blow of covid.
“The availability of more money has increased consumption or demand, and supply has not been able to keep up with rising demand. There are other factors as well such as international supply chain disruptions, Batabyal said.”
Soft Landing or Recession
So what does the surge in inflation mean for the economy?
“Back in spring the Federal Reserve was talking about a soft landing, meaning reducing the inflation rate without a recession or with a small deceleration of economic activity,” said Merih Uctum, professor of economics at City University of New York.
“In the face of the stubborn inflation numbers, Fed chairman Powell now is referring to taking the economy to recession if necessary. Analysts overall believe that the supply shocks will soon be easing and the demand softening.”
And if that does prove to be the case, “we are likely to have a mild recession, ”Uctum said. “However, if inflation remains above 5%-6%, the high rates will continue, and most likely lead to a hard landing, i.e., a more serious recession.”
So far the Fed has raised interest rates by 3.75 percentage points since March, pushing the federal funds rate on overnight interbank loans to 3.75% to 4%.
Where is Inflation Worst?
WalletHub, looking at 22 major metropolitan areas, put together a list of which areas have the highest inflation. It ranked cities according to a combination of their consumer price inflation in the latest month versus two months ago and versus a year ago.
The cities with the highest inflation are:
1. Phoenix-Mesa-Scottsdale, total score: 100
2. Miami-Fort Lauderdale-West Palm Beach: 79.24
3. Detroit-Warren-Dearborn: 77.62
4. Seattle-Tacoma-Bellevue: 76.78
5. Anchorage: 73.91.
The cities with the lowest inflation are:
22. Houston-The Woodlands-Sugar Land: 31.41
21. Washington, D.C.-Arlington, Va.-Alexandria, Va.: 36.86
20. Denver-Aurora-Lakewood: 41.82
19. St. Louis: 46.43
18. New York-Newark-Jersey City: 47.29.
While the 7.7% inflation of October represented a decline from 8.2% in September, “central banks and many other forecasters may be underestimating the risk of persistently high
Inflation,” Jamie Thompson, economist at distinguished research firm Oxford Economics, wrote in a commentary.
“While our view is that inflation is likely to recede next year, the outlook is highly uncertain, with evidence underscoring the risk of a more gradual slowing.”
