Why does Inflation peak during a recession?

Seems counter-intuitive.

Thanks, Rex.


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inflationary environment = higher prices = less spending = recession

SorcererMikey wrote:

inflationary environment = higher prices = less spending = recession

obviously oversimplifying (before people jump on me) but that should give you the intuition behind it. 

can go into a lot more detail if that doesn’t turn on the lightbulb.

end fo cycle inflation peak. so inflation peaks b4 recession

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That works - thanks.

I wasn’t factoring lag time. Was under the impression that during recession prices are falling and therefore deflation. 


I think it may be beneficial to add that inflation is a lagging indicator too. 

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In the first stage heading to recession inflation is high because the economy was overwhelmed. In the late stage disinflation is coming and deflation may appear during extended recession. Just my 5 cents. The last example, global crisis 2008-201x…

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I was a little confused by Question 7 in the Practice Problems of Reading 14, but I think you clarified it for me. The inflation rate seems to have peaked in 2009 and continued to drop as the economy goes through the recession, which jives with your thought that inflation is high heading into the recession. The chart on Page 54 makes it seem like inflation peaks either in the middle or throughout the recession which was throwing me off