Inflation alone unlikely to lead to recession, Phoenix economist says

PHOENIX – As U.S. inflation surges to its highest level in 30 years, a Valley economist says the chance of recession is low.

“[The inflation rate] isn’t a good thing but it’s not enough to throw us into a recession,” Jim Rounds of Rounds Consulting Group in Phoenix told KTAR News 92.3 FM. “No one issue like this, inflation, could cause a recession, but if it combines with several other negative factors it potentially could.”

On Wednesday, the government said its consumer price index for October soared 6.2% from a year ago — the biggest 12-month jump since 1990. The Bureau of Labor Statistics reported consumer prices in metro Phoenix rose 2.2% over the past two months and 7.1% since August 2020.

Slammed by COVID-19, the U.S. economy collapsed in the spring of 2020 in the wake of lockdowns. Businesses closed or cut hours and consumers stayed home as a health precaution.

“Normally, the government provides some stimulus activity to fill in the holes and we move on. In this case we overstimulated everything,” Rounds said. “In this case, we probably overstimulated everything.

“Interest rates were too low and too much cash was provided directly to the public. Not only did the feds fill the hole, they dumped a bunch of money on top of the hole and at some point we have to pay that back.”

Rounds says when this much money is bouncing around the economy it brings inflation. He believes it could be months until things flatten out.

And it’s not just the excessive stimulus dollars behind the inflation issues – supply chains remain disrupted and labor shortages continue.

“The cost to producers is greatly increasing and exceeding the costs to consumers and those costs are going to be passed on to consumers,” Rounds said.

Bacon prices are up 20% over the past year, egg prices nearly 12%. Gasoline has surged 50%. Buying a washing machine or a dryer will set you back 15% more than it would have a year ago. Used cars cost 26% more.

“The great thing about economics is that everything evens out after a little while. Some of the advisers for the federal government are indicating that this is only maybe a nine-month-to-a-year problem.

“I think it’s going to go on a little bit longer,” Rounds said.

The Associated Press contributed to this report.

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