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LEGISLATIVE REPORT
Fiscal Easing in Response to Coronavirus Pandemic
14% (Percent of GDP)
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12%
10%
8%
6%
4%
2%
0%
World U.S. Euro Area China Japan
rapid inflation. Even though wages have grown, they are lower now than at the start of the pandemic, once the effects of inflation are considered.
The chart below shows the monthly producer (PPI) and consumer (CPI) price indexes since 2008. Prices at the manufacturing and consumer levels have been higher than the Federal Reserve Board’s 2% target since early 2021. In May, the PPI increased by 10.8% and the CPI by 8.6%, compared to year-earlier levels—the widest pendulum swing since the late 1970s.
As the impact of rising interest rates increasingly dampens spending, the likelihood of a recession continues to increase. Many economic forecasters believe that recovery from this impending downturn will be slower than from the last sharp but short recession. That is how generous government assistance, tangled with persistent supply chain mishaps, led to higher prices, which in turn are now requiring sharply rising interest rates to bring inflation under control. These higher interest rates will likely slow consumer spending and thereby increase greatly the likelihood of a recession by the end of this year.
Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
12
U.S. Producer Price and Consumer Price Indices
(Year-Over-Year Percent Change)
10
8
6
4
2
Federal Reserve Target: 2.0%
0
-2
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22
Source: FRB, BLS
