Is stagflation coming back for 2022?

Published on Mar 03, 2022

Is stagflation coming back for 2022?

The last time the U.S. went through stagflation was during the 1970s, when inflation shot up due to rising oil prices and unemployment was soaring. As inflation has risen in the U.S., largely due to supply chain issues stemming from the pandemic, many people have wondered if 2022 will be the year stagflation comes back.

The good news is that most experts believe that is not the case. While inflation is on the rise, it will likely level off during the year, and the U.S. economy is not stagnating; in fact, it is trending upward.

The outlook on rising inflation

Inflation is certainly high right now. The most recent Consumer Price Index Report (CPI) showed that, in December 2021, prices climbed by 7% year-over-year – the highest such increase since June of 1982.

The Chair of the Federal Reserve, Jerome Powell, recently said, “High inflation is a severe threat to the achievement of maximum employment.”

To combat that threat, according to Forbes, the Fed is expected to start increasing interest rates – possibly three to four times in 2022 – to fight inflation. An increase in interest rates tends to slow down consumer spending, which in turn reduces demand and results in lower prices.

With these efforts in place, along with resolving supply chain issues, higher vaccination levels, and more people returning to work, economic experts think that rising prices will slow – especially towards the latter half of the year.

The outlook on economic growth

According to the Washington Post, the US economy has made tremendous strides since the pandemic first hit. While some of its progress was offset by rising inflation, the economy grew at its fastest rate in decades in 2021 – with an (adjusted for inflation) gross domestic product (GDP) growth of 5.7%. Economists predict that 2022 will continue that trend and anticipate the economy growing by another 3.9%.

Additionally, the unemployment rate – which is already sitting at a low 4% – is expected to drop further to 3.8% by the end of 2022. That will be close to the lowest it has been in the past 50 years.

Bottom line: all indicators point to the fact that the US economy is recovering well, so hopefully stagflation is not in our immediate future.