The economy appears to be moving in the right directionRecent analysis from Dr. Tenpao Lee, economist and professor emeritus at Niagara University, sees a number of positive sings moving into the second half of 2022.
The Bureau of Labor Statistics just announced that the Consumer Price Index (CPI) increased by 9.1% in June compared to 8.6% in May, and the “Core” CPI, which excluded the more volatile food and energy components, increased by 5.9% in June, compared to 6.0% in May.
“Though these numbers represent the highest rates since the early 1980’s, if we look at them carefully, we may conclude that the economy is moving in the right direction, indicating contained inflation and the avoidance of a recession,” said Dr. Lee.
The economist listed the following list for the basis of his prediction:
- Oil prices peaked in mid-June and dropped from $120 a barrel to about $97 a barrel now, in mid-July. Consumers are already feeling the difference at the gas stations, but the CPI in June did not fully reflect this drop.
- Many major retailers, such as Target, have high inventory levels and are under pressure to lower their prices.
- The impacts of the pandemic are diminishing, and supply disruptions are gradually being resolved. For example, Delta Airlines just announced positive returns for the second quarter of 2022, and China is more likely to adjust its zero-COVID policy to ease supply issues.
- The European countries and Russia are exploring their second-best solutions caused by the Ukraine War. The global economy continues to move forward, even with war’s existence.
- The Fed did its share by raising interest rates to contain inflation. The market expects that the Fed will raise rates continuously by another .75% before the end of July. However, given the drop in the oil market, the Fed may surprise the market and institute just a .50% increase to reflect the contained inflation and simultaneously prevent a potential recession.
- The unemployment rate is still below 4 percent, another sign that a recession is not imminent.
- The government and all consumers are making decisions based on real-time information in the global economy. Therefore, economic cycles are shortened, and the recovery could be faster than expected.
Dr. Lee offered that an optimistic prediction has the CPI at 8.5% in August, a slight drop, and the core CPI at 5.5%. He warns, however, that the economy is dynamic and there are always uncertainties. “The invisible hand and self-interested behavior will help us achieve optimality,” he said.