Home Latest News $1400 Stimulus Checks: The Reason for Surging Inflation? – 19FortyFive

$1400 Stimulus Checks: The Reason for Surging Inflation? – 19FortyFive

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Economists Say COVID Stimulus Checks Made Inflation Worse – In an analysis from the Federal Reserve Bank of San Francisco, four economists argue that the reason the United States is experiencing higher inflation than other countries is the extent to which the federal government issued stimulus checks and spent federal money on COVID-19 relief.

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Published on March 28, the analysts note that the inflation rate in the United States has long tracked other developed economies closely, but that this trend has changed in recent years.
However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries,” analysts Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes write.
“Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021.”
By using the Phillips curve logic – a model that describes the inverse relationship between unemployment and inflation – the analysts discovered a correlation between pandemic support measures and inflation. They found that the United States’ aggressive support measures – compared to less substantial support measures in other developed economies – drove inflation much higher.
By modeling inflation without fiscal support, the analysts found that U.S. direct stimulus check payments “may have contributed to an increase in inflation of about 3 percentage points by the fourth quarter of 2021.”
“The United States is experiencing higher rates of inflation than other advanced economies,” the analysts write. In this Economic Letter we argue that, among other reasons explored by the literature, the sizable fiscal support measures aimed at counteracting the economic collapse due to the COVID-19 pandemic could explain about 3 percentage points of the recent rise in inflation.
After the Stimulus Checks: Where Is Inflation Right Now?
Speaking at the Bloomberg Wealth Summit in New York this week, co-head of global Private Wealth Management Meena Lakdawala-Flynn said that inflation in the United States appears to be peaking.
“In the US, we do think that inflation is peaking right about now,” she said. “We think the probability of a recession has increased in 2023.”
Consumer prices are currently the highest they have been in 40 years, with inflation reaching 7.9% in February.
While inflation may be pealing, however, it doesn’t necessarily mean that prices will fall dramatically. Writing for Barrons, Randall Forsyth notes how 72% of consumer spending falls into what is known as “close-to-trend” prices – which are increasing.
“These are mainly services, which means they are unlikely to be imported and tend to be labor-intensive,” he writes. “These accounted for 3.4 percentage points of the 5.4% rise in core PCE and could continue to run strong and offset the disinflationary impact of slowing goods prices.”
He added that as the cost of fuel and gas stop increasing – though, notably are not dropping substantially – the less-visible costs of services, including rent, will “likely continue to rise.”
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.
John Egan
April 10, 2022 at 2:48 pm
One of my favorite classes in college was ‘Statistics and Measurements’. In that class, we all learned the mantra ‘Correlation does not imply causation.’… A prime example of that was the Harvard study that found a correlation between women’s hemlines and the stock market. (A tongue-in-cheek example of how correlation can be misconstrued.)
I just read a story yesterday regarding the British Government’s panic over the highest inflation the country has seen in 40 years… and the impact on the average Brit, and the recent shut-down of gas stations there due to lack of ‘petrol’ and such. Although our nation is experiencing inflation, we aren’t Britain…. or Germany, or France… Every country has it’s own issues that feed into inflation… Most are shared, like the Russian invasion of Ukraine, and the Covid Pandemic.
I did a quick check and found that CPIs from various nations are calculated with different factors.. (Supposedly those that affect the local populations…) Recently, for example, I read that here in the US the price of used vehicles has skyrocketed, and that is factored into the US CPI calcs… They don’t do that elsewhere… Comparing government inflation indexes between different countries is therefore difficult at best…
Once you consider other issues that affect our inflation rate differently than elsewhere, such as our apparent recovery from Covid and the resurgence of employment coupled with a massively low unemployment rate and lack of available employees, (which isn’t a part of what’s going on in other nations, notably Europe)… You have to ask how valid an apparent correlation between Stimulus Checks and our economy really is. In fact, if you sit down and consider the impact of the $1400 stimulus checks and associate it with the disruption of our economy and the 15% loss of jobs under Trump, is this really a problem, or the results of good policy?
Based on prior recessions and depressions (The Great Depression, Reagan’s Recession, Bush Jr’s Great Recession) the administration at the time, tended to bail out corporations and let the average citizen collapse… If you look at the present results under Biden, the Stock Market is stratospheric, Corporate profits are through the roof, unemployment is at 60-year lows (If I recall), people are still in their homes, etc… Would you rather go through those recessions, or be in the position we are now? Speaking for myself, I’m OK with a little inflation, whether or not it’s a result of government largess.. Maybe I’ll just cut back on buying used vehicles… No more than say 3 a month!
I find it unlikely that the stimulus checks are the cause of our inflation and really don’t care if that means we’re 1% higher than France, and still 3% beneath Brazil. We dodged a massive depression! Good for us!
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