The rise in prices coincided with the American Rescue Plan Act, of which the third stimulus check, or the economic impact payment, was a part. Critics said that too much money was pumped into the economy, and it ultimately led to record levels of inflation that continue to trouble Americans, particularly the low and moderate earners.
But these same critics ignore the basic fact that it was the stimulus check that prevented inflation in the first place. It also prevented mass starvation, loan and mortgage defaults, and people being evicted from their homes as they were unable to pay home rent or home loan mortgages.
The whole purpose of the Rescue Plan Stimulus Check was to stabilize the economy and ensure that it was back on track way sooner than even the most optimistic economists and experts had predicted.
Most economists believe that the Stimulus Check money that reached people’s hands directly was a very minor factor as most of the money has long since been spent. But the price of goods continues to rise across the spectrum and inflation continues to rise.
Before the pandemic or the Economic Impact Stimulus Checks, inflation was chiefly driven by staples such as housing, education, and health care, all independent of the series of stimulus checks.
Consumer prices were up by 8.5% year-on-year in March, reflecting a general increase not recorded in Americans since 1981. This surge in inflation had much to do with the fact that there were not enough goods to meet demands, and people were experiencing pent-up demands.
Everyone was concerned about inflation, and it made the lives of millions of Americans miserable as it was under quite different circumstances with climbing expenses and wages falling behind despite a healthy post-pandemic rise.
For the first time in decades, Americans were experiencing negative wages for the first time. Despite healthy growth in wages, Americans lost out on real-time earnings as the high inflation led to them earning much less than before.
Everyone is concerned about inflation as their income is not keeping pace even as expenses continue to mount with each passing day.
Making Sense Of The Stimulus Check’s Link To Inflation
The rising inflation has led to a long-running debate between political parties and has been the main issue during the midterms for the Republicans even as the Democrats have sought to focus on other issues such as abortions.
And the main reason for this is that people are expecting prices to go down as it is almost a year since inflation has stayed close to double-digit figures. Economists are themselves confused about which Stimulus Check policy is best suited to rein in prices at the moment.
At present, a group of economists says that inflation is driven mainly by wage growth. The post-pandemic growth in wages led to a corresponding growth in prices. And with an increase in prices, businesses tried to sell more by hiring more workers at high wages. This further had an inflationary effect on the cost of production and thus prices to a point when they began to outpace supplies. This sustained inflationary increase in prices.
Similarly, the stimulus checks were part of a historic $1.9 trillion Rescue Plan signed by resident Biden in March 2021. The amount injected into the economy pushed demand too high and caused the economy to overheat by giving people thousands of dollars in disposable income.
The pace at which the stimulus checks were sent out led to an excess of money in the hands of people in the initial weeks. While most people spent it on settling high-interest debts like credit card debts and other mortgage payments. But for millions, the money meant a bonus amount as their income was not disrupted during the pandemic. Such families and individuals sought to spend the Stimulus Check money.
And the only avenue open for them was through products as the service industry, such as travel and tourism, remained severely affected, and it would be months before it could turn back to normal.
Economists say that to curtail the high inflation, wages also need to cool down while the fall in unemployment levels, which now sits at 3.6%, is also contributing to inflation. That number is 6 million.
But most economists look at the bleak financial landscape for the international scene as the war in Europe and the continuing supply issues worldwide continue to affect production and keep the prices of oil perpetually high.
With no signs of the war easing and America getting more directly involved on the ground. It seems that America is again getting drawn into a long protracted war that could prove to be way more expensive than the Iraq and Afghanistan adventure as it involves another superpower, Russia.
The war in Europe has severely limited the supply of grain and oil, both from Ukraine and Russia.
Big American corporations are also taking advantage of the situation and pushing up prices at a breakneck pace. They have taken advantage of the pandemic and the accompanying scarcity to drive up prices. The largest price hikes in 2021 were from the most concentrated industries of 2020.
Firms in monopolistic industries such as oil refining and pharmaceuticals have been successful in leveraging the demand in the market into record-high prices. Oil alone is responsible for the highest increase in inflation rates and has raked in millions in profits in the post-pandemic oil crisis period.
The international oil crisis has been a boon for them as they have dug into their reserves and have kept on increasing prices. American policy in Europe has also been a major reason for the high prices after it initiated a blockade of Russian oil. This has pushed up international prices of oil from the Middle East bloc. China and India have benefitted from this blunder initiated by Biden as they continue to buy cheap Russian oil and have created a huge buffer in the past year.
The picture suggests that non-demand factors too have played a major role in driving inflation. This has major consequences in not just how we perceive the issues but also how we can solve them. Thus, the focus should shift more to blaming the big corporations with monopolistic market powers, the war in Europe, and the pandemic for the mess and tackle each issue accordingly.
