Do Stimulus Checks Actually Help Inflation?
Aug 20, 2022
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With the recent debate over inflation stimulus checks, it's important to understand how they could actually impact inflation. One potential issue is the prepayment penalty, which is when people use the stimulus check to pay off debts or save instead of spending it. This could lead to less money being circulated in the economy, which could in turn lead to deflation. Additionally, if businesses receive the stimulus check and then raise prices, this could also lead to inflation. However, it's important to keep in mind that there are other factors that can impact inflation as well, so it's difficult to say definitively whether or not stimulus checks will have an impact. Ultimately, more research is needed to determine the potential effects of inflation stimulus checks. This article will look into whether stimulus checks help inflation or not.
What Exactly is Inflation?
Before we discuss the connection between stimulus checks and inflation, let’s define inflation, so you’ll know what we mean when we employ this term. Inflation refers to the cost of services or goods within an economic infrastructure rising simultaneously.
In other words, when you see the cost of virtually all goods and services rising at what seems like an unprecedented rate, that’s inflation in action. 2022 has seen such a rise, meaning your money does not have as much purchasing power as it did in previous years.
Stimulus Checks
During the pandemic, the federal government issued stimulus checks directly to families who were struggling financially. The government transferred $5 trillion back to the population in 2020 and 2021. Stimulus checks accounted for much of that, some coming through the Child Tax Credit. Even more went back to the public through programs like SNAP, the Supplemental Nutrition Assistance Program.
The Connection Between Inflation and Stimulus Checks
Most people would agree that stimulus checks were a welcome supplement to their household income during economic hardship. However, some might believe that because inflation started to increase dramatically soon after the federal government released those checks, one event caused the other.
That’s somewhat of an oversimplification. Inflation always accompanies economic expansion. It’s a regular event. Companies grow and hire more workers. When that happens, there’s less unemployment, so households have more cash to spend. The demand for services and goods increases, so prices rise.
Since stimulus checks caused a cash infusion for the economy, you can connect the two events to some degree. Credible financial entities estimated that government stimulus checks might have added as much as three percentage points to the national inflation rate.
Other Factors
However, other factors definitely come into play when looking at the rapid inflation rate with which Americans have recently contended. Russia invading Ukraine caused an oil price spike. That drove up shipping and manufacturing costs and forced up the price of commodities such as wheat.
Factory closures during the pandemic’s early stages reduced supplies while demand was rising. That caused the prices of many goods to spike.
Finally, the pandemic caused people to value goods more than services. Producers struggled to keep up with demand, which caused higher prices.
Stimulus Checks Partially Drove Inflation
The answer to whether government stimulus checks helped drive inflation is that they did to some degree. Any time households get a cash infusion, that will cause prices of goods and services to rise.
Those checks were not the sole reason for the inflation we’re currently seeing, though. The pandemic caused people to demand more goods. That caused higher prices. Factory closures reduced supplies in the face of rising demand, which also caused significant price spikes. Russia invading Ukraine had an adverse effect on global markets, specifically causing oil prices to rise, along with commodities like wheat.
Virtually no one likes to pay more for goods and services, as they are right now with inflation running rampant. Still, the government stimulus checks that went to families and individuals during the pandemic helped to keep some households afloat during dire times. Although you can trace inflation back to those checks to some extent, most people feel they were necessary for Americans and the appropriate action to take under the circumstances.
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