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Inflation Now, Recession Next? Week Ahead

Does a months-long bout of increasingly steeper inflation rates mean a recession could be just around the corner?

Though the National Retail Federation believes U.S. consumer spending could drive 6 percent to 8 percent retail sales growth for 2022, or $4.86 trillion to $4.95 trillion, that projection is far from a home run. And, of course, the Federal Reserve is expected to take its next rate hike up 50 basis points instead of 25, going higher to tamper down inflation.

Morgan Stanley chief investment officer Mike Wilson is concerned that the inflation surge and the Fed’s fiscal policy could end up pushing the economy into a recession.

The U.K.’s inflation rate rose at a nearly 30 year high, forcing Britain’s Central Bank last month to hike rates in a bid to deescalate the surge.

At the World Retail Congress in Rome, Deloitte chief global economist Ira Kalish said the war in Ukraine has dramatically dialed up the risk of a global recession, throwing a “monkey wrench” into what was a post-Covid recovery and fueling new increases in raw materials prices.

Kalish also said that the pandemic crimped the labor pool and drove up wages.

“A lot of older workers decided to retire, a lot of parents decided to stay home and look after their families, and some people decided to remain in education,” he said. “In certain sectors such as retail, people lost their jobs when shops closed and they didn’t have the skills to be part of the shift online.”

This puts Central Banks in a precarious position.

“They have to strike a really delicate balance between controlling inflation and not adding to what is already a much higher risk of recession in the major economies of the U.S., Europe and North America,” Kalish said.