If we are experiencing a recession, it is an unusual one. Triggered not by the usual decline in corporate activity and job losses, but by a unique combination of supply chain disruptions, a war in Europe, rising energy prices, and the persistence of COVID. Other recessions in history could not claim that their economy added new jobs for a 17th straight monthly gain (390k+ in May alone), and that the unemployment rate is at its lowest in a half century…
The common denominator of the issues in America has been inflation with the U.S. Consumer Price Index rising by 8.6% over the 12 months ending in May, while the ‘personal consumption index’ (another measure of inflation) rose 6.3% over the same period. But is the U.S. alone in its inflationary misery?
As you can see from the chart, many countries are seeing their monthly costs rising much faster than the 1-2% rate we’ve all grown accustomed to—and consumers in Turkey, Argentina, Russia, Brazil, Spain and the UK are having a harder time battling inflation than Americans. What the chart doesn’t tell you is that most countries calculate their inflation using measures closer to the personal consumption index. If you compare apples to apples then the entire Euro area, Canada, Mexico, India, Italy and South Africa are suffering higher price increases than we are in the States.
Point being is that inflation has become a global phenomenon, even though most of the press coverage focuses on the U.S. Federal Reserve Board’s efforts to raise interest rates. If we’re going to defeat the rising costs of living, it will call for the coordinated efforts of the global community, which means you can expect other central banks to follow the Fed’s lead and constrict liquidity and in the end, their economies as well.