Economist: Inflation no longer transitory, yet recession seems remote

University of Arkansas Walton College economist Mervin Jebaraj thinks inflation will be present for a significant period of time, but he doesn’t see a recession in the near term.

Appearing on this week’s edition of Talk Business & Politics, Jebaraj said the prospects of inflation being a short-term problem have disappeared.

“I think maybe a year ago, we were talking about inflation being transitory. I think that is no longer the case. This inflation is going to be with us for a while,” he said.

Jebaraj said there are a couple of complicating factors that will impact inflation. While the Feds have and will continue to raise interest rates, supply chain issues could re-emerge to sabotage inflation-taming tactics. He said China appears on the verge of a new COVID outbreak, which will impact supply chain woes. That country’s zero COVID policy combined with less effective vaccines is likely to hamper economic output.

“Then the other side of it is, there’s been a supply chain crisis and energy prices going up as a result of Russia’s invasion of Ukraine. The energy prices are likely to stay high for a while longer. There is some prospect of a deal with Iran and the U.S. and the EU, to get us back to the nuclear deal that we had under the Obama administration. That should see Iranian oil back on the market and should help reduce prices,” Jebaraj said.

“The other thing that could help reduce prices is domestic production here in the United States. That has been held back because in the last couple of years when there wasn’t a lot of demand for oil, a lot of domestic producers of oil got cleaned out and were taken over by larger Wall Street investors, who impose a lot more discipline in terms of producing the oil.

“They’re much happier now taking the higher prices and not producing oil. So there is some negotiation between the administration and oil producers and investors to try to get more domestic oil produced,” he said. “But at this point, it’s not in their incentive to go ahead and produce more oil. They’d much rather take the higher prices that they’ve gotten for the investment they made last year.”

Jebaraj said despite complicated economic conditions, he isn’t expecting a recession unless something else significant escalates or appears.

“We don’t expect to see… a recession this year, in part because there’s still some hangover from the stimulus that happened last year and the year before, in terms of how much money is in people’s households,” he said. “There was an infrastructure bill passed last year as well. There’s still some more money coursing through the economy. So I don’t think we’re expecting a recession this year. That could change obviously if there is another major crisis that we’re dealing with. We’re already dealing with an energy crisis, we’re already dealing with grain prices going up because of the Russia-Ukraine crisis there. And then you add to that, what’s going on in China again.

“So if we add more crises to that, you could end up in a situation where we would get closer to a recession. But as of this point, given the crises that we already have today, which are quite a bit, we don’t expect a recession in this calendar year,” he said.

You can watch Jebaraj’s full interview in the video below.