States Move In Greater Numbers With Stimulus Checks: But Are The Payments Linked To Inflation?

stimulus check
stimulus check

States are sending out billion to households and individuals as stimulus checks, though the form of payments has varied across states. And the fresh round of payments, the only support for Americans in 2022 in the absence of the federal stimulus checks, has led to warnings of further inflation as prices continue to assail ordinary Americans.

Low and moderate-income Americans had a tough 2022, at times worse than what they faced in 2020 and 2021, at least economically. In the past two years, they had the federal administration to support them through the tough times of the pandemic. Americans without any means of income and with a total shutdown across sectors were still able to put food on the table and avoid loan default, and homelessness.

The third stimulus check was the last of the stimulus checks from the federal government and it came through starting in March 2021. But while the previous two stimulus checks escaped any blame for the inflation, the economic impact payment signed by President Biden in March 2021 took much of the blame, most of it from the Republicans.

But while experts have concurred that the stimulus checks, particularly the third payment initiated by President Biden, had a role to play in the record inflation that continues to assail Americans, the figures are too insignificant for the payments to take the blame for the record hike in prices. Many experts say that it amounts to a mere rounding slip in the general inflation picture.

And now detractors of the relief measures have gone after the state-level rebates on tax and other forms of stimulus checks that have been supporting residents in at least 20 states and have helped them in the absence of federal stimulus checks.

The obduracy of the Republicans was responsible for the deadlock in Washington and led to the end of the stimulus checks and other federal support measures by 2021.

One of the best support measures was the expanded Child Tax Credit stimulus check that helped keep away millions of children and their families out of the clutches of poverty.

Inflation And The Stimulus Checks

While many causes lead to inflation, experts have pointed to a combination of at least three factors, with some factors weighing in more heavily than others. It is in simple terms the increase in the general level of prices and is not limited to the price of any single service or good.

Inflation can also be caused by a surfeit of money without matching economic growth, also known as monetary inflation.

It can also come about as a consequence of greater demand for goods and services than is in supply at that moment. It can be either demand-pull or cost-push. Thus it is either too few goods to meet the demand or an excess amount of money to meet demand without corresponding prices increasing.

But economists say that this does not apply to states as they in the first place do not print currency or control the money supply. So they cannot take the blame for an excess of money chasing too few services or goods.

Further, the supply chain issues, or the cost-push dimension seen in inflationary economies, are not linked to state payouts. The government services provide by American states to the economies come at a zero price and only user fees are charged. Such fees are immaterial and insignificant in the bigger picture. Thus there cannot be any inflation when the price is zero.

So the only sort of inflation that can affect states is the demand and pull type of inflation. Leaving aside that, it has mostly been Republican posturing before the midterms, which doesn’t seem to have fooled Americans greatly.

Have Other Major World Economies Sidestepped Inflationary Situations?

Has America been the old nation assailed by high inflation that has brought the economy to its knees? Not by a long shot, say economists. For 12 months at a stretch till June 2022, the federal consumer price index rocketed to 9.1%, the highest year-over-year growth seen since November 1981.

And that was nothing when compared with energy prices. The war in Europe combined with heavy demand post the pandemic, energy costs went up close to 42% in one year, again the largest jump seen since 1980.

Even discounting energy and food prices, both being infamously volatile and have led to the rise in prices over the past year and a half, the core inflation to have spiked 5.9% within a year.

At every step of the way, consumers have endured the pain of rising prices that have overshot the increase in wages by a long margin. Americans have been facing negative wages for a year as the rise in prices has been more than doubling the increase in wages after the pandemic.

To mention a few, unleaded gasoline has gone up over 60%, airline tickets have shot up 34%, breakfast sausages are up over 15% and eggs have gone up 33%.

Jerome Powell, the Federal Reserve Chairman did not anticipate inflation would turn out to be so persistent or severe. But after decades of staying at completely manageable levels, high inflation costs have reasserted themselves at a ferocious pace even as shortage of supplies and labor was up against a propulsive growth in the demand for services and goods across America.

But prices have affected all leading economies in Europe and Asia. Prices have risen and continue to do so in just about all leading economies of the world. The war in Europe has been a definite factor, elevating energy costs.

The bottleneck in the supply chains continues to assail the economies and has been a major contributing factor to the spike in inflation.

The IMF has predicted that inflation would continue to endure and will jump close to 6% even as companies continue to struggle with the high costs of raw materials. For emerging markets, the prediction is gloomier with the IMF predicting an inflation rate of 8.7%, the highest since 2008.

This situation will endure till the supply chain disruption continues to assail production schedules across the world. But the recovering job market will ensure that America as a whole will continue to keep spending. Employers added a record 6.7 million jobs last year and it continues to grow at a healthy average of 457,000 every month.