CDI Economic Summary: US inflation heightens recession risk

Joseph Chang


NEW YORK (ICIS)–Inflation is Public Enemy No 1, and the US Federal Reserve will pull out all the stops to decapitate the beast, heightening the risk of recession.  Turmoil in the financial markets reflects such fears, as the Fed embarks on a series of aggressive interest rate hikes and the unwinding of its $9tr balance sheet.

If there was any doubt on the Fed’s resolve, chair Jerome Powell quashed it as he opened the FOMC (Federal Open Market Committee) press conference on 4 May by addressing the American people directly.

“Inflation is much too high, and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down.  We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses,” said Powell.

The US government is already releasing crude oil from the Strategic Petroleum Reserve (SPR), and even considering a lifting of tariffs on Chinese imports to tamp down inflation.

A peak in US inflation is yet to be seen.  The April Consumer Price Index (CPI) rose by another 0.3% from March and is up an eye watering 8.3% year on year.  At least the monthly pace of gains moderated in April as March saw a 1.2% month-on-month gain.

Globally, the Russia/Ukraine war is further exacerbating inflation with higher energy and commodity prices and logistics constraints while China’s COVID lockdowns add to such constraints while also severely straining its economy.

ICIS projects US Consumer Price Index (CPI) inflation to peak in Q2 at 8.2% and ease to 6.4% by Q4 2022, and an average of 3.6% in 2023 as Fed rate hikes take effect.


The massive pile-up in inventories at US big box retailers bodes well for goods inflation easing and is also a warning sign for chemicals demand, which has partly been propped up by overbooking of orders.

Walmart’s Q1 inventories rose 8.3% from Q4 2021 and a stunning 32.0% year on year to $61.2bn.  Target’s Q1 inventories were up 8.5% quarter on quarter and 43.1% year on year. Home Depot and Kohl’s also saw big jumps in inventories, along with ecommerce leader Amazon.

Consumers are still spending, but on different things.  US retail sales overall rose 0.9% in April from March and was up 8.2% year on year – not surprising given the level of inflation.

But retailers were shocked by the magnitude of the spending shift away from discretionary and “bulkier” items such as home and kitchen appliances, TVs and outdoor furniture, as more of the household budget is taken up by food and fuel.

Bloated inventories will lead to price markdowns in at least the next two quarters as retailers look to move excess stock.  This destocking will be felt down the supply chain, all the way to chemicals and plastics.


US housing continues to levitate at high levels, with April starts down just 0.2% from March to a seasonally adjusted annual rate (SAAR) of 1.72 million – up 3.1% year on year.  But building permits fell 3.2% month on month.  While demand for housing has been resilient, higher mortgage rates and rising home prices are expected to take a toll on demand later this year and next.  ICIS projects housing starts to peak in 2022 at 1.72 million before falling to 1.60 million in 2023.

Light vehicle sales improved 6.6% in April from March to a SAAR of 14.3 million units but was down 21.9% from a year ago on continuing semiconductor and other supply chain constraints.  ICIS projects only a slight improvement to 15.2 million units in 2022 from 15.0 million in 2021.

Overall, the risk of recession in the US is elevated amid high inflation, energy volatility, aggressive Fed tightening and knock-on impacts from the Russia/Ukraine war and China’s COVID lockdowns, with ICIS seeing a 37% chance in the next 12 months.  One bright spot on the inflation front is the coming destocking in retail.  Great if you’re in the market for some patio furniture but businesses may want to hit the deck.

Additional contribution by Kevin Swift

Thumbnail shows dollars. Image by Shutterstock


ICIS Premium news service

The subscription platform provides access to our full range of breaking news and analysis

Contact us now to find out more

Speak with ICIS

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?