Natural State News

While the state's economy had enjoyed a rapid recovery, a prominent economic forecaster stated that recovery on the national economy is still going to impact the state.

Michael Pakko, a state economic forecaster with the University of Arkansas at Little Rock, said the state has fared better than other states because of the lack of severe restrictions on the state during the pandemic, however, he was concerned about national trends.

“Current price pressures can be attributed to a number of sources,” he told the Natural State News. “In the aftermath of wide swings in consumer demand during the pandemic and subsequent recovery, along with related supply chain pressures, we’re facing strong demand and weak supply in the markets for goods, in particular. Measured inflation — when calculated as year-over-year changes in prices — is also subject to a base effect whereby prices during the recession and immediate aftermath were suppressed. This is particularly true for oil prices and related energy costs. Prices were unusually low a year ago, so measured price increases since then are partly just a recovery of more normal market conditions.”  

There are a number of indicators that the recent surge in prices across all industry sectors could last for a long time, he said.

“When it comes to inflation becoming endemic and embedded in the economy, however, it’s not federal spending that matters,” he said. “In the long run, inflation represents a devaluation of the purchasing power of the dollar. That puts the ball squarely in the court of monetary policy and the Federal Reserve.  Inflation can only persist and accelerate when accommodated by monetary growth. High rates of federal spending can put pressure on the Federal Reserve to maintain low interest rates given an increased demand for borrowing from the federal government (if the spending is deficit financed), but it’s not the federal spending itself that accommodates inflationary pressures — it’s the monetary response.”

He said that retail sales could not continue at their current rate, which is above that of personal income.

“I’m anticipating that in 2022, we’ll see a slowdown in consumer spending, more here in Arkansas than the rest of the country because we’ve already basically spent it all, and we’ll get back to a more sustainable growth path by the end of 2022 and into 2023,” he said, Talk Business & Politcs reported Nov. 11.

Pakko told Talk Business & Politcs that he expects the state’s unemployment numbers to return to pre-pandemic levels by the end of this year.