CHARLOTTE – Odds are even that a recession is coming in 2022, according to Dr. John Connaughton, a professor of financial economics at the University of North Carolina at Charlotte.

“Inflation is clearly not going away any time soon,” said Connaughton in a statement released following the event.  “The Fed may have to become more hawkish, and that could spin the economy into recession later this year or early next year.”

Additionally, the uncertainty of new COVID-19 variants arising could temporarily slow economic activity and further compromise the supply chain, Connaughton said during the a quarterly economic forecast on Thursday.

The inflation rate in the United States is 8.3% according to the latest data from the U.S. Bureau of Labor Statistics.  And the inflation rate has been rising since a year ago, noted Connaughton.

“Beginning in April 2021, we started to see the first hit on prices, and it’s been going up and escalating.”

“These are annual numbers,” said Connaughton.  “Food was up 9% in April compared to April 2021, that makes up 13.4% of all the items in the basket, energy was up 30.3% annually.”

We’re seeing increasing prices currently due to supply-side factors as well as on the demand-side, said Connaughton.  The result is that the economy could experience problems going forward.  And that impacts American households in real terms, Connaughton noted.

“We have the ongoing problem of inflation,” said Connaughton.  “Sure, we’re spending more and more in nominal terms, but we have less money overall in real terms.”

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Supply chain

One such problem, noted Connaughton, are the ongoing issues with the supply chain.

“Prices are pushed up by increases in the cost and availability,” said Connaughton.  “This is the issue with the supply chain.”

There’s no escaping the ongoing challenges in the supply chain, either, he noted.  There may also be expanding supply chain issues.

We hope it gets better, but we can see it is not getting better,” said Connaughton.  “We can see, actually, in some ways that it is getting worse.”

And those challenges could continue, as well.  Supply chain challenges could be exacerbated due to labor supply shortage, should companies push consumer prices up due to the increasing costs of operation, said Connaughton.

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Forecasting inflation

Even if everything were to go exactly right, Connaughton explained, the U.S. inflation rate may still land between 6% and 7% in 2022.

That’s because multiple months of inflation above 7% have already occurred, with the most recent two months of available data showing increases of 8% in consumer prices year-over-year.

“Unlike any other time,” said Connaughton.  “Particularly for an extended period.”

Still, suppose we were able to cut inflation in half this month, and in every month that follows.

Even at 4% inflation in May, June, and through December, said Connaughton, “we would still continue to see over 6% inflation rates by the end of 2022.”

And because of that, Connaughton predicted that the Federal Reserve will remain “more hawkish” in its monetary policy.

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Coin flip odds

There are even odds there’s a recession coming in 2022, Connaughton said.

But, even if one were to come, it could be shorter than other recessionary periods in the history of the United States.

“If we get a recession this year, my guess is that it will be pretty short,” said Connaughton.  “We could expect to see it end pretty quickly.”

And while about 2 in every 3 CEOs expect the country to dip into a recession, only about one in nine believe the country will experience a “hard landing.”

A few factors that people may wish to track in order to brace for a possible recession include oil prices, Fed policy, and any impact on what Connaughton called “the wealth effect” of the current stock market correction that we’re experiencing.

Those factors, along with consumer confidence and the inflation rate, said Connaughton, “put us at a 50-50 chance of recession in 2022.”