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An American shopper grooving to Centerfold on their Walkman cassette player in March 1982 knew all too well the tenuous value of a buck in a high inflation environment. It had been more than 20 months since the end of the recession that ran the first half of 1980, long enough in fact that the U.S. economy had double dipped into another recession, and during that time consumer prices had soared 14.6 per cent.

For the first time since then, U.S. consumers are facing a similar bite. The shock isn’t quite as extreme. Prices for goods and services are up just shy of double-digit rates since the brief COVID-19 recession officially ended in April 2020, but it’s a pace unlike anything seen in 40 years.

With this week’s report showing consumer prices climbed 7.5 per cent in January from the year before, which exceeded forecasts, there are few signs inflation is about to slow. That’s one big difference between where the U.S. economy is now and where it was in early 1982. By that point, the pace of inflation had slowed to less than seven per cent from nearly 15 per cent in 1980 amid steep rate hikes by the U.S. Federal Reserve. Those rate hikes helped tip the U.S. back into recession.

To fight the current inflation crisis the Fed is widely expected to increase rates starting next month. So begins the balancing act. Move too slow, and consumers will continue to face spiralling prices, but hike too aggressively, and the U.S. could face the spectre of another double dip recession.

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