1) High demand

There was a lot of pent-up demand after the pandemic. People were itching to travel, to go to restaurants and bars, and shop in stores again. They were also eager to see friends and family members after a long time. The demand led to a lot of spending once the lockdown ended.

Prices rise when there are scarcity and/or high demand for products or services. A corporation will boost its pricing if material, labor, or shipping costs increase due to shortages. Companies will also charge more if they discover that customers are willing to pay more due to scarcity.

2) Supply chain disruption & China’s zero covid policy

We are currently witnessing a perfect storm of factors, which began with a scarcity of all varieties of commodities during the coronavirus epidemic, owing to industrial closures and logistical jams in some of the world’s largest export hubs, such as China. It increased the costs of raw materials, manufactured goods, and transportation, which customers had to bear.

3) Excessive money printing

The Federal Reserve’s money printing policies are inflationary and are a long-term threat to the economy. The Fed has been printing money at an unprecedented pace in recent years, which has led to higher prices for goods and services. This policy is not sustainable in the long run and will eventually decrease the dollar’s purchasing power. Countries around the world pushed money into their economies to assist buyers and businesses tormented by income loss during the pandemic.

4) Overconsumption

People went on spending sprees with their government assistance money and savings when they began to emerge from the lockdown. It, along with a shortage of goods, reduced the availability of everything from refrigerators to shoes. Companies responded by raising their prices.

5) Ukrainian war

By impeding commerce in natural gas, oil, and grains, Russia’s aggression in Ukraine in February exacerbated the issue. Wheat, a mainstay in much of the world, has risen in price, as have the prices of heating and cooling homes and businesses, fueling automobiles and jets, and hauling products. It also increased the cost of fertilizer, making food production more expensive. It means that if wages do not keep pace, many people will be unable to commute to work, eat enough, or put up the thermostat in the autumn and winter.

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A recession seems inevitable, considering food and fuel prices are surging. April’s consumer prices were 8.3% higher than in 2021. Annual inflation is 6.2%, excluding food and fuel prices. War in Europe and China’s rampant lockdowns have disrupted global supply chains and created scarcity and price rises. Meanwhile, the American labour market is better than before, with two new jobs opening for every unemployed individual. It hasn’t been this good since the 1950s. Goldman Sachs’ reported annual wage growth of 5.5% is also alarming companies that can’t afford it unless they pass those prices onto their consumers.

The Fed is trying to douse the fire by aggressively hiking interest rates to more than 2.5% by 2023. They hope this will bring inflation down by 2%. However, economists speculate that hiking interest rates will more often shrink the economy. The Fed has raised interests seven times since 1955, and after six of them, a recession followed. The only exception was the 1990s, as the labour market was balanced and inflation was low.

The coming recession is likely mild because consumers are still flush with cash from the pandemic stimulus, and companies are faring well. The housing prices are not skyrocketing as in the 2000s, and banks look healthy. And inflation hasn’t run wild for years like in the 80s. It is only a year above target.

However, American markets have fallen by 15%, and Wall Street is distressed. It is difficult to say how it will react to a Fed-induced recession. To make things worse, the Fed had printed trillions of dollars during the pandemic, which is partly driving inflation now.

Wall Street was bailed out once in 2009. It will be difficult for America to offer another bail-out package without hurting the rest of the economy.

All this, combined with hyper-partisan politics, creates a recipe for disaster. A recession would arrive sometime around 2024 and would be the talking point of the next election. It may ignite the fires of populism and protectionism, ensuring the return of Donald Trump.

The last three recessions aligned with US elections and saw the ruling party lose power.

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