Consider This from NPR - Inflation Keeps Getting Worse. Is A Recession Next?

Episode Date: April 12, 2022

Prices are up on everything from groceries, to rent, to gas, and consumer price inflation hit a new 40-year high in March: Up 8.5% over a year ago.This increase impacts everyone across the economic spectrum, but inflation poses a particular hardship for low-income families. And while the Biden administration has announced new steps to bring down gas prices and other visible signs of inflation, there's mounting political pressure to do more during this midterm election year.NPR Congressional Correspondent Kelsey Snell and Chief Economics Correspondent Scott Horsley break down the stakes for those hit hardest by inflation and for the government. Scott Horsley also speaks to economists who explain why they believe the U.S. might be in another recession soon. In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Ginger Bryce used to spend about $800 a month on groceries for herself and her two kids. But more recently, I would say more like $1,000. That's going to cut into her moving expenses. She lives with her 9 and 12-year-old in Austin, Texas. And this is the family's third move in two years. Because the rent where she lives now is about to go up this summer. They were going to raise my rent here by 20%.

Her new place will be smaller, and she'll only be saving $100 on rent each month. I'm not going to save that much in rent. Ginger also went through treatment for stage four breast cancer last year and wasn't able to work for a while. On the one hand, the diagnosis taught her to worry less about what she can't control.

I just manage what's in front of me. So for me, it's like I'm not really worried that much about the future. And she's even able to laugh about her hardships. I'm not sick every single day, right? Like, for me, I'm excited that I'm going to maybe get to live 10 more years. That's a pretty fun thing, right? On the other hand, despite having found part-time work for now, she still worries about making ends meet. You know, we just roll with the punches.

In the words of David Lee Ross, got to roll with the punches to get to what's real. And speaking of punches, just last week. My car died on the way to go pick up my kids from school, and I was in a little bit of a mini panic. And I thought, well, where am I going to get that money? And this is the reality for so many Americans right now. Even though unemployment is dropping, money is getting tighter and tighter.

Their families paying more for gas, groceries, and housing as they brace for the unexpected. Luckily for Ginger, a warranty covered her car repair. But what if it hadn't been? So the struggle financially is the fear of the unexpected. Consider this. Inflation is now at the highest it's been in more than four decades. And that figure still understates the impact for lower-income Americans. From NPR, I'm Ari Shapiro. It's Tuesday, April 12th. this, Capital One, offering Capital One Shopping, a downloadable browser extension that searches various sites for shoppers. What's in your wallet? More at CapitalOneShopping.com.

It's Consider This from NPR. 8.5%. That's how much the Department of Labor says its consumer price index jumped since March of last year. This is the sharpest year-over-year increase since December of 1981. And the numbers seem to match people's fears. A Gallup poll from the end of March found that people in the U.S. are more worried about inflation than at any point since 1985. The White House has taken some steps to address inflation, especially when it comes to gas prices, a highly visible symbol of inflation. Gas prices soared after Russia invaded Ukraine. especially when it comes to gas prices, a highly visible symbol of inflation. Gas prices soared after Russia invaded Ukraine. Let's give a warm Iowa welcome to President Joe Biden.

On Tuesday, the Biden administration announced it would temporarily allow sales of gasoline made with a 15% ethanol blend this summer. E15 is about 10 cents a gallon cheaper than E10. And some gas stations offer an even bigger discount than that. That type of fuel is typically banned during the summer under the Clean Air Act because of concerns over pollution. But it's not going to solve all our problems. It's going to help some people. And I'm committed to doing whatever I can to help. And while the Fed raised interest rates last month to help ease the impact of inflation, there's still a lot of political pressure for the White House to do more,

especially in a midterm election year. My colleague Daniel Estrin spoke about it all with NPR chief economics correspondent Scott Horsley and congressional correspondent Kelsey Snell. Scott, let's start with you. Prices jumped 1.2 percent just between February and March. What is going on? That's right, Daniel. Just when you think prices can't go much higher, they go higher. Year-over-year inflation is the highest in more than four decades. The monthly increase in March was the highest in 17 years. And more than half that total jump in prices last month came at the

gas pump. We know the price of gasoline hit an all-time high after Russia invaded Ukraine. And even though gas prices have come down a bit since then, the average price across the country is still well above $4 a gallon. But it's not just gasoline, right? No, it's not. Grocery prices have also been going up a lot. Some of that's also tied to the war in Ukraine. Both Russia and Ukraine are big wheat producers, and flour prices, for example, have been climbing around the world. But even before the war, food prices were on the way up. Over the last 12 months, grocery prices

have jumped by 10%. And food economist David Ortega of Michigan State University says that's the biggest sticker shop at the supermarket in 40 years. We're headed into Easter weekend, right? So we're looking at egg prices are up over 11%. You know, that Easter ham that many Americans will be cooking is up 14%. So it's very real for people here. Now, not everything is more expensive. The price of used cars actually dropped last month after soaring earlier because of the shortage of new cars. But that drop in used car prices was more than offset by price increases elsewhere. Rent's been going up, as we heard Ginger Bryce talk about. Airline tickets are getting more expensive.

Inflation is spreading throughout the economy. I got my hair cut this past weekend, and there was a sign in the barbershop warning that prices are going to go up $2 at the first of the month in order to pace with inflation. That's a 12.5% increase. Although, after cutting my own hair early in the pandemic, I can tell it's worth every penny. I'm sure you look good, Scott. But let me turn to you, Kelsey. The White House keeps using this term Putin's price hike. So the White House very deliberately trying to blame Russia for inflation, at least for gas prices. Is that strategy working? Well, I'll point you to an NPR Ipsos poll conducted last month that showed that roughly a third of all respondents and two thirds of Republicans blame Biden specifically for inflation. You know, only about 20% of all Americans in that poll say they blame Putin for gas and oil prices.

It's even just a quarter of Democrats who blame Putin. You know, more so they blame big oil and gas companies. But, you know, as Scott's been saying, gas and oil are just one part of inflation. And people are really worried about things like the cost of groceries, as we heard. People worry about housing. People worry about new cars. Just about everything right now is more expensive, and people do realize that those price concerns predated the war. Okay. So, Scott, where does inflation go from here? Forecasters think March was probably the peak for annual inflation, unless another war breaks out

someplace. Gas prices have started coming down. We're also coming into a stretch where last year's prices were higher, so the year-over-year comparisons are going to look a little bit better. But even if inflation cools off a bit, prices could stay uncomfortably high. The Federal Reserve has started raising interest rates, and over time that should help to bring demand back in line with supply. But there's a long lead time before those rate hikes start to work. So we're likely to be living with higher inflation than most of us are used to for some time to come. And Kelsey, there are politics to this too, right? Are Democrats worried that inflation

could hurt their chances of keeping control of Congress in the midterm elections? Oh, absolutely. And they have every reason to be worried. You know, most political strategists will tell you that most people vote based on how they personally feel and the world they personally experience. If people feel like they are being economically harmed and they see that those conditions have gotten worse under Democrats,

well, many of them will blame the party in power. You know, Biden is aware of that. That's why he went to Iowa to talk about gas prices. He's going to North Carolina on Thursday to talk about supply chain problems. That said, there are a lot of things that can happen between now and Election Day. And while it's unlikely inflation will suddenly get resolved, that doesn't mean major events won't happen. That could alter top political priorities for a lot of voters. That was NPR's Kelsey Snell and Scott Horsley.

Inflation had been tame for most of the last four decades. That changed last year as the U.S. began its rapid rebound from the coronavirus recession. The economy has improved over the last two years, but between rising prices, surging consumer demands, supply chain kinks, and Russia's war on Ukraine, another economic downturn could be on the horizon. More now from Scott Horsley on why economists believe a recession could soon be upon us. By many measures, the U.S. economy has staged a remarkable comeback from the pandemic downturn. Employers have added nearly six and a half million jobs in the last 12 months, and unemployment has plunged to just 3.6 percent.

So why is Matthew Luzzetti, the chief U.S. economist for Deutsche Bank, sounding the alarm about a looming recession? It's probably surprising to be talking about recessions at this point, given the momentum that we've seen, particularly in the labor market. And yet, it's precisely that sizzling labor market that has Luzzetti worried. As employers scramble to find scarce workers, they're bidding up wages, and that's helping push inflation far above the Federal Reserve's target of 2%. The ultimate conclusion is we are having very strong growth, but it is inflationary growth. Luzzetti thinks the Fed will have no choice but to crack down hard, and he predicts by late next year that will push the economy into recession. Other forecasters are also getting nervous.

Economists surveyed by the Wall Street Journal put the odds of recession in the next 12 months at 28 percent, more than double what they were a year ago. For much of the last year, the Federal Reserve thought inflation was primarily the result of supply chain snarls that would work themselves out once the pandemic eased. Luzzetti agrees there may be some relief in store, but it's taking a long time. We continue to push out our expectation for when these supply chain issues will be resolved, and that is one area where the recent invasion of Ukraine has exacerbated and elongated those price pressures and the supply chain issues that we are to face. What's more worrisome is that inflation is spreading, thanks to consumers' insatiable demand for all kinds of goods and

services. Last month, the Fed began raising interest rates in an effort to tamp down that demand. What the central bank would like to do is cool off inflation without sending a chill through the whole economy. But the monetary thermostat is not that precise, and former Treasury Secretary Larry Summers says the chances of the Fed getting it just right are not good. It could happen, but I don't think it's terribly likely. Summers has been arguing for more than a year that both Congress and the Fed were pumping too much money into the economy with big COVID relief payments and rock-bottom interest rates. It would have been better, Summers says, had they started turning the taps off sooner. Mopping up

now from the resulting high inflation is likely to be painful. Now the bathtub is overflowing, and it's much easier to stop a bathtub from overflowing than it is to get the water back. White House economic advisor Brian Deese is pushing back on that gloomy forecast. At a breakfast sponsored by the Christian Science Monitor last week, Deese argued the strong job market and extra money in consumers' bank accounts will be an asset that should help the country to weather any coming economic storm. The United States is better positioned than any other country in the world to navigate through this very difficult period of time.

Summers says he understands the administration's goal of running a hot economy and boosting workers' wages. But he adds the resulting high inflation and threat of recession have created a political and economic minefield. Increases in demand can be profoundly good for workers. But if they're unsustainable and they necessitate subsequent recessions, then they ultimately boomerang. Summers, who's a Democrat, argues in the past voters' frustration with high inflation helped to fuel Republican victories, from Richard Nixon to Ronald Reagan. GOP congressional candidates are hoping that history repeats in midterm elections later this year. That's MTR chief economicsent Scott Horsley.

And you also heard additional reporting in this episode from producer Brianna Scott. It's Consider This from NPR. I'm Ari Shapiro.