We survived the complicated and scary economy of 2022. But what have we learned?
Inflation emerged as a major theme, enveloping millions of businesses and households. These higher prices show up everywhere, but they don’t – at least not yet, it seems – drag the country into recession. Economic forces are complex and challenging. We aim to bring them to life.
Through five vivid dispatches spanning March through November, our Econ 101 series explored the origins of inflation, higher gas prices, rising rents, and rising food prices. But importantly, this series also sheds light on how the labor market can prove resilient and prevent inflation from dragging the economy into recession. That labor market is now under new pressure.
Chapter 1 | March 16
Inflation: How prices took off.
Over the past two years, the U.S. economy has faced its biggest challenges in a generation on multiple fronts. It shrinks too fast. Then it grew too fast. This forced millions of Americans to live through something they had never experienced before: periods of high inflation. Our guide, published in March, explained what caused the price to rise.
What has happened since: Prices have continued to rise, spiked during the summer. The Federal Reserve raised interest rates several times in 2022 in an effort to contain inflation. There are signs that inflation may be cooling off, but it will take longer than many expect. There are several reasons why inflation has remained high for a long time. One reason is because Russia’s invasion of Ukraine has distorted energy and food markets. Another reason is that consumers continue to spend money at a high rate despite rising prices.
What’s next: Many analysts expect inflation to continue to cool, potentially reaching a more normal level by the end of 2023. However, this prolonged period of inflation has made it difficult for many households and businesses. The Fed has begun to signal that it may soon begin to slow the pace of rate hikes. They worry that raising interest rates too much could lead to a recession.
Chapter 2 | June 1
Pump shock: How gas prices have pushed us to the brink.
Rising inflation, a growing economy, people returning to the office and an increase in the number of people hitting the road for long overdue trips have helped push gas prices to near-record levels. Making matters worse – a lot worse – is Russia’s invasion of Ukraine. Russia is the world’s third-largest energy exporter, and the United States and its European allies have moved to punish Russia by restricting imports. This has pushed prices up for everyone, especially in the summer driving season.
What has happened since: Gasoline prices increased from $2.53 in February 2020 to $5.01 on June 13, 2022. The momentum pushed President Biden’s vote count to the lowest point during his time in office. . But prices soon began to plummet and supply increased. The White House moved to release oil from the Strategic Petroleum Reserve, and several major production facilities have increased capacity. By the November midterm elections, the average gas price was $3.80, according to AAA. That’s still an uncomfortable high for many, but it’s nowhere near the level it was just a few months ago.
What’s next: The White House has said it wants to continue to pressure energy companies to lower gas prices, and Republicans have said a key part of their agenda for 2023 is boosting US production to more domestic supply. It is unclear whether either political party will have as much power when it comes to energy prices. The larger factors will likely be the extent of Russia’s involvement in Ukraine and the broader direction of the global economy. If the global economy slows down, gasoline prices are likely to fall even more.
Chapter 3 | July 28
What causes a recession?
Over the course of the summer, as gasoline prices soar, there is a growing sense that the United States will soon enter a recession. Many people think that the US can ready fell into a recession. But what exactly is a recession? That’s what we want to explain. A recession is a type of economic downturn that is usually caused by a sequence of events. In this case, the Federal Reserve raised interest rates causing the stock market to fall, causing consumers to become pessimistic about the economy. In some cases, there are signs that consumers may begin to pull back on spending, which would be a way to ensure that a recession is coming.
What has happened since: However, the last domino to fall was to fire the employee. Just when it looked like a recession seemed imminent over the summer, the labor market kept spinning and employers continued to hire hundreds of thousands of people each month. With an extremely low unemployment rate – at one point 3.5% – consumers have plenty of income and don’t need to cut spending as much as many economists fear.
What’s next: Massive layoffs have begun in the past few weeks, mostly focused on the tech sector. Facebook, Twitter and Amazon have already started cutting thousands of workers. If this spreads from the tech sector to other parts of the economy, it could be the final domino leading to a recession. But if layoffs remain in this one industry, the economy may continue to grow.
Chapter 4 | September 1st
Why is the rent so high?
As inflation unexpectedly gains new momentum in the second half of 2022, housing costs emerge as a major burden on millions of renters. Many people have been left out of the hot housing market, and so they have to compete with more people to rent apartments or houses almost anywhere in the country. There are many reasons for this, including not having enough supply to meet demand. And people are using the pandemic as an excuse to move and relocate, which is causing more volatility and in many cases creating more competition for units.
What has happened since: There are signs that rental rates may eventually stabilize and prices fell in many markets in October on a month-to-month basis. That could provide welcome relief, especially for those who are finding themselves excluded from the housing market due to rising interest rates.
What’s next: With high interest rates and a cooling housing market, the rental market remains at risk of major volatility. But as inflation appears to be cooling down, that should further bring rental prices back to more normal levels.
Chapter 5 | November 10
food-inflation
Food prices will skyrocket in 2022, but there are different reasons for different products. Avian flu pushed up prices of turkey and chicken meat. Heatwave and drought in Idaho pushed up potato prices. Bread prices skyrocketed as wheat exports were delayed due to the war in Ukraine. Meanwhile, labor shortages have pushed up the prices of dairy products. Each item seems to have its own problems, which increase costs across the board.
What has happened since: Millions of Americans feel the pressure of inflation at grocery stores and restaurants, but people continue to spend money. There is evidence that shoppers have modified their behaviour, such as choosing less expensive alternatives in the aisle for meat or produce. This type of behavior is likely to continue until the price rises and falls.
What’s next: There are so many different drivers of food prices that it’s hard to know when things will stabilize. But some experts say food price inflation is peaking and it’s likely that prices will actually fall in 2023.
