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Consumers Reacting Differently To Inflation

Consumers are reacting differently to high inflation than in the 1970s’ recession, says Eric Lascelles, chief economist at RBC Global Asset Management. He told PH&N Investment Services’ ‘Economic challenges/ Peaking inflation’ session they are deciding not to spend this time – which is not good for the economy in the long run, but good for reducing inflation. They are acting like this period of inflation is temporary, unlike the 1970s when they assumed it would be higher next year so they spent more. While there is an 80 per cent of recession next year, he expects it to be a “middling” one taking three to four years to recover, much milder than the ones that occurred following the pandemic and the great financial crisis (GFC). It took six to eight years to recover from the GFC recession. The pandemic recession recovered too quickly – less than two years. “In retrospect, maybe it was too fast to the extent it created a lot of distortions and problems of overheating based on just the velocity of that recovery,” he said. While inflation is very high this year, he expects it to become less high next year and then settle modestly above two per cent as commodity price increases, supply chain problems reduce, and monetary and fiscal stimulus ease. While these appear to be turning, it won’t snap back to two per cent and return to complete normalcy because it is too broad. There is inflation in every corner of economy and will take time to root out, he said.

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