Inflation escalates and the risk of economic recession

Inflation and the risk of a new economic recession have been hot topics since yesterday, when the CPI index was announced with an unexpected increase to 8.6%. What factors are leading to the current loss of control over the inflation situation? What might be awaiting the economy after the FED's tight monetary policy? This week, Viet Hustler will analyze the current inflation landscape, the causes of the CPI index escalation, and the potential consequences of inflation on the economy. 

Current inflation landscape

Inflation at the highest level in 40 years

• The overall CPI has risen to 8.6% year-over-year, much higher than the previous expected figure of 8.3%. This is also the highest inflation rate since the end of the Great Inflation period 1965-1982 (The Great Inflation).

• The Core CPI index (orange line on the chart) shows signs of slowing to 6%, lower than 6.2% from the previous month but still higher than the forecast of 5.9%. 

  • Core CPI excludes the two most volatile items: Food and Energy

Inflation growth much higher than expected

• CPI rose 1% from the previous month, much higher than the expected 0.7% and the 0.3% in April

• The highest monthly CPI increase in the first 5 months of 2022 was 1.2% (March), while the peak increases in the same period of 2021 and 2020 were 0.9% and 0.5%, respectively.

Fuel, food, transportation, and housing prices

• Fuel oil prices rose to a record +106.7% year-over-year and +16% from April

  • Diesel prices at record high: $5.70 /gallon

• Gasoline prices up +48.7% year-over-year and +4.1% from April

• Airfare prices up +37.8% year-over-year and 12.6% from April due to surging fuel prices.

  • Airfare is one of the main factors keeping the core CPI high.

• Meat, fish, and egg products have the highest price increases among food sectors

• Although shelter costs only increased 5.4% year-over-year, this cost accounts for the highest weight in total consumer spending. 

  • According to the 2020 consumer spending survey, housing costs account for 32% to 40% of consumers' annual total expenditures.