Even as it becomes certain that the federal administration has turned its back on any more stimulus checks, the states are slowly moving in to help out residents. This has been possible thanks to an exceptional year and the funds received from the federal administration under the American Rescue Plan Act. But the Republicans have tried to blame the stimulus check for the record inflation, mainly to shield one of the real reasons for it – corporate greed.
Even as inflation figures surge to record highs every month, the federal administration has tried to put a lid on it through rising Federal Reserve interest rates. The Republican opposition in Washington has tried to put the blame squarely on the shoulders of the stimulus checks, mainly the third stimulus check, or the Economic Impact Payment, which was part of the American Rescue Plan Act.
The Act was signed by President Biden in March 2021 and is a $1.9T COVID-19 rescue package that was designed to facilitate the recovery of the US from the devastating economic conditions brought about by the pandemic.
The Record Inflation Had One Other Factor Other Than The Supply Chain Issues And The War In Europe: Corporate Greed
Americans are furious about the unabated surge in prices of gasoline and other essential items. But they are being fed lies by an opposition that has the interest of the corporate sector at heart. They couldn’t care less for the workers and have turned a blind eye to greedy companies that have sought to relentlessly defend.
The Democratic ruling party in Washington has sought to crack down on this price gouging by oil companies. To this end, the House of Representatives, controlled by the Democrats, has passed a bill along party lines to rein in these companies engaging in price gouging, especially the energy-producing giants.
Britain has also announced similar plans by imposing a temporary windfall tax of 25% on oil and gas companies and channeling the proceedings towards households who continue to financially suffer post the pandemic.
While other factors have majorly contributed to the rise in prices, the stimulus checks‘ contribution to inflation is only minor compared to the other factors.
Other Factors That Have Caused The Record Inflation: Stimulus Check Continue To Take Partial Blame
There are several plausible reasons for the record inflation that the US is reeling under. They include production and supply chain issues. There has been a huge disruption at factories due to the irregular supply of spare parts factories and also the movement of finished goods from factories to warehouses, freight yards, and ports.
There was a severe shortage of workers as people choose to stay at home during the pandemic, then risk their health of the pandemic. In this respect, the stimulus checks played a negative role as they encouraged a section of workers to stay at home and play it safe rather than risk their lives during the peak months of the pandemic. They had the cushion of the economic impact payments to fall back on during this crucial period.
Resurgent spending by consumers and the drop in supply created a demand and supply imbalance and further jacked up prices. Inflation hit 8.6% in May from a year earlier and touched 9.1% in June. This is the biggest spike in price since 1981.
Federal Reserve Adopts Aggressive Measures To Immediately Rein In Prices
The Federal Reserve has been slow to react to the spike in inflation. The action has been belated, but it has moved in aggressively now. It raised the benchmark rate for the short-term on June 15 by three-quarters of one point. It is the largest hike since 1994. It has also signaled that more hikes in rates are to follow soon.
The Federal Reserve expects that they will succeed in achieving a soft landing. They hope to slow growth sufficiently to curb inflation with the economy reversing and sliding into a recession. This is what occurred in 2009 when the nation went into a long recession and it took years to recover from it.
The rate of inflation has remained at 2% or below that; the annual target for the Fed. Unemployment has also remained at a low for the past half-century figure. And when the economy rebounded after the brief recession during the pandemic with amazing strength and agility, the consumer price index began to rise steadily.
The CPI rose from a yearly increase of 2.6% in March 2021 to the four-decade high seen last month. For a brief moment, the surge in inflation kept track with the rise in corporate earnings. It revealed the fact that corporate price-gouging was behind inflation. Some economists term it greedflation.
In a revealing poll conducted in April and May, around 72% of the 1,055 Americans polled blamed the greedy corporation as the leading cause of the pandemic. This number was more than the people who believed that the war in Europe was to blame (69%), or it was Biden’s policies that were to blame (58%).
The disruption caused by the pandemic was blamed by 58% of the respondents. The polling results were naturally divided along party lines with 86% of Democrats blaming the corporation for the spike in gas prices while only 52% of the Republicans pointed fingers at the oil majors.
Blaming Only One Factor Could Be Simplistic
Many economists believe that the answers are not so simplistic. The pandemic was a new factor for economists to analyze and the COVID-19 pandemic and its aftermaths were difficult for economists to immediately analyze. Present-day economists have little experience in handling situations such as the pandemic. For them, it is new.
Economists, analysts, and policymakers have been blindsided time and again. The first surprise post the pandemic was the pace of recovery. Experts had never expected the economy to recover so swiftly after the severe downturn caused by the pandemic.
This recovery was thanks to the vast spending by the government that was sustained throughout the pandemic in various forms. Record low rates offered by the Federal Reserve and other central banks helped in this regard.
But what they missed out on was the gathering clouds of high inflationary pressure. Dismissing them as merely a temporary consequence of the war and the disruption in supply was the Federal Reserve’s biggest mistake.