Will Inflation Stimulus Checks Worsen The Price Situation?

The American Bureau of Labor Statistics has released data that shows that the inflation rate for the 12 months ending June 2022 is 9.1% for the country. It is the largest annual increase since November 1981 after rising 8.6% the previous month. That means that over 12 months from June 2021, prices of everyday goods and oil prices have increased at a rate that remains the highest over 4 decades. And the stimulus checks are taking part of the blame for the situation.

And the low and moderate-income families are taking the brunt of it in every direction right now. While millions of families are still recovering financially after the downturn following the pandemic in multiple ways, they are again being made to pay more than ever to fill up their vehicles and stock with even the basic pantry items. This double whammy comes at a time when the stock market has tanked and many retirement investors and savers have seen their investment value drop by as much as 20% in many cases.

The Disappearing Stimulus Checks Compound The Woes Of Citizens

The disappearance of the federal stimulus checks has added to the woes. The stimulus checks had proved to be a lifeline during the difficult months of the pandemic, which has stretched its presence with the emergence of more variants that kept people from getting work as businesses across sectors remained shut down.

Successive stimulus checks were issued by the federal administration starting right after the American economy went into a tailspin following the pandemic shutdown. The stimulus checks proved to be a lifeline for an overwhelming majority of Americans as they struggled to put food on the table and necessities. Most Americans for the first time in their lives were faced with the prospect of defaulting on their loans and utility bills. Homelessness threatened to become a reality for millions, unable to pay home rent.

In such a situation, the direct and immediate relief offered by the stimulus checks and the host of other support measures introduced by the federal government saved people from the dire consequences of a total halt to their earnings. This comes at a time when most Americans live paycheck-to-paycheck.

The stimulus checks were the right prescription for the economic woes that accompanied the pandemic. But critics have contended that it was at least partially to blame for the inflation that crept in starting the third quarter of 2021 and overwhelmed the economy by the first quarter of 2022. It continues to rise and has the federal administration taking drastic measures including increasing the banking rates.

Conservative economists believe that the stimulus checks were largely to blame, especially the third stimulus check issued after incoming President Biden signed the American Rescue Plan Act, 2021. It came immediately after the second stimulus check was issued in December 2020.

People suddenly had more money in their hands than they needed to survive. People who had never earned so much money suddenly found that they could even pay off their credit card debts and even save and invest a part of the money.

Even after the third stimulus check, aid continued to pour in with the extended unemployment checks that continued into September 2021 and the enhanced Child Tax Credit stimulus checks monthly payments that paid 50% of the amount between July and December 2021.

The federal stimulus checks ended in December last year but the damage was done by then. Prices were already rising in the last quarter of 2021, and the federal administration sat on it, hoping that it was a temporary passing phase and would auto-correct on the strength of the economy.

The economy was going through a brief upsurge at that stage, as people spent the excess money on goods and created artificial demand. The market could not keep up with the demand as supply chain issues continued to assail the economy.

The war in Europe in February 2022 further complicated matters as sanctions were imposed against the third-biggest supplier of oil in the world. The move backfired and led to a rise in oil prices even as Russia remained unaffected as it merely diverted the oil to Asian giants like China and India. Europe also continues to draw Russian oil under pre-war agreements that will be in effect through 2022.

State Stimulus Checks Could Further Complicate The Economic Situation

And crazily enough, a section of the administration continues to believe that the answer to arresting inflation is giving more money to Americans. The economic boom seen in the last two quarters of 2021 led to states ending up with a surplus budget that year.

This was supplemented by the fund sent under the ARPA to the states with advice to spend it on pandemic relief measures. But in effect, there was no control over how the money would be spent. And states have been instructed to commit their plans for the fund, or it would revert to the federal government.

Around 18 states have used these double funds to plan stimulus checks on their own to support residents with inflation relief payments. Though the payments have been way lower than the stimulus checks payments, it will add to the money that has already been pumped directly into the hands of people.

States including California, New Mexico, Maine, Colorado, Delaware, Idaho, Hawaii, Georgia, Kansas, Kentucky, Indiana, and Virginia have announced measures of their own. While the plan has still not crossed the legislature in some states, it appears to be destined to become a reality and could add to the woes of inflation.

Inflation Relief Stimulus Checks Could Worsen Situation

Much of today’s inflation is driven by fuel prices and supply chain issues. But the stimulus checks were also complicit in the situation today. The risk of more stimulus money into the economy is dangerous at this stage as the nation could go into recession at any moment.

While like on previous occasions it could help ease the burden of this inflation on the poor and middle-class families who are impacted the most, the long-term effect remains a worry for policymakers.

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