FORT WAYNE, Ind. (WANE) — Gas prices are high. People are having to manage their budget at the grocery store. Does it mean we’re headed toward a recession?
Purdue Fort Wayne’s Community Research Institute director Rachel Blakeman says it’d be a bit premature to think we’re heading there, but it is something to watch.
During a recession, the economy shrinks. People stop spending, and economic activity decreases.
Blakeman says that’s not what we’re currently experiencing. If you compare now to the Great Recession from 2007 to 2009, there are stark differences.
The Great Recession was caused by the financial sector, Blakeman noted. During that period, there was inflation coupled with high unemployment rates, which caused a serious decrease in spending. An example would be the housing market, which was in extremely bad shape.
Comparing that to 2022, there’s a surplus of jobs available and house prices keep going up.
What we’re seeing now, according to Blakeman, is an extended period of inflation due to an imbalance of supply and demand across the board. It’s consumer driven.
Oil supply is low, but people still need gas. That’s causing gas prices to go extremely high. Demand for groceries is high, but there are shortages causing supply to be low. All of a sudden, people are paying much more for a carton of eggs than they’d like to.
Used car prices are up after a chip shortage left dealerships all over the country lacking new inventory. People turned to used cars, but the supply never changed, which drove the cost up.
Blakeman said this period of inflation has lasted longer than many expected, but supply and demand leveling out will solve the problem.
“As supply chains get back in line, as consumer demand realigns with supply, then we’ll start to see prices come down because those who are providing goods and services have an inventive in a free market to give us the best value,” Blakeman said.
Blakeman added that it’s basically impossible to predict the future and there are still a lot of factors at play. The pandemic played its role. Continued conflict in Ukraine will eventually reveal its impact on the global economy.
But because inflation is the main issue here, she believes a potential recession wouldn’t reach the depths of the Great Recession of the late 2000’s.
“The fundamentals that got us into the Great Recession in 2007, ’08 and ’09 are not what we have in the economy today,” Blakeman said. “So, if there is a recession, assuming everything else holds even, the recession won’t be as severe. We should come out of it faster, but again, [there are]lots of factors here that we don’t have answers to yet.”
Blakeman said we saw a recession that lasted a few months during the 2020 pandemic shutdowns. The hope is the economy will expand more than it shrinks.
She also noted that a recession is part of a healthy economy, just as inflation is. She said deflation occurred during the Great Recession, which is bad for the economy.
Of course, everyone would like the current inflationary period to let up sooner than later.