The housing market in the US collapsed due to increasing interest rates, and high inflation sapped the momentum from corporate and consumer spending, causing the economy to contract for the second consecutive quarter—a popular definition of a recession. The GDP of the US fell at inflation and a seasonally adjusted annual rate of 0.9% in the second quarter of 2022. Consumer prices rose 6.8% in June 2022 over that in June 2021, and up from 6.3% in May and April 2022, as measured by the Commerce Department’s personal consumption expenditure (PCE) price index.
Inflation Jumps to a Record 6.8% in June 2022
While average salaries of workers remained static, total inflation rose sharply in June 2022. The indications are that Americans will not get relief from soaring gasoline and food prices anytime soon. The Federal Reserve has been monitoring inflation, which increased to a record 6.8% in June 2022, according to the data released by Fed. The prices of commodities increased 1% in June, one of the highest increases since 2005, despite being computed on a monthly basis. Compared to a year ago, the PCE index, which excludes volatile costs of food and energy, gained 4.8% in June, up from 4.7% in May 2022. Food costs increased 11.2%, while energy prices rose 43.5% from a year earlier.
Is a Recession on the Horizon?
“I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well,” Fed chairman Jerome Powell said at a press conference. One factor contributing to recessionary fears was the decline in the gross domestic product, a crucial indicator of economic production. The decline in GDP of 0.9% for a second consecutive quarter was a clear indication of a coming recession. However, the job market is strong, which is an indicator that the economy is still healthy.
Outlook
The Federal Reserve chairman hinted at a potential slowdown while offering few details on the size of the coming rate hikes. By the end of 2022, Fed officials intend to increase the rate to between 3% and 3.5%. In July, there were indications of easing of pricing pressures in certain significant economic sectors, suggesting that the high inflation numbers from June may have been the peak. Consumers frequently pay close attention to gasoline prices, which already decreased by almost 15% from their mid-June high of $5.02 per gallon.
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