Could Stimulus Money Be Causing Rapid US Inflation?

Banknotes of the United States of America and a protective mask against the virus.
Sergii Zyskо / Getty Images/iStockphoto

The trillions of dollars in stimulus money the United States government has poured into the economy over the last year-and-a-half has provided a needed financial lifeline to millions of Americans and businesses hurt by the COVID-19 pandemic, but it might also be a leading contributor to the country’s rapid inflation.

See: 4th Stimulus Payment of $1,400 Not Off the Table Entirely Thanks to InflationFind: IRS ‘Math Error’ Notices Soar Due to Stimulus Payments — Are Child Tax Credits Next?

Proponents of this theory point to the fact that the U.S. has experienced higher price spikes than other developed countries at the same time it has passed much bigger stimulus packages, Bloomberg reported. The massive amount of stimulus money being sent to Americans — combined with pent-up demand for goods and services as COVID-19 restrictions eased — created the perfect storm for inflation, experts say.

As Bloomberg noted, the U.S. rolled out vaccines and reopened for business faster than most advanced economies, which means it was also first to witness post-lockdown consumer demand. And while global supply-chain problems have driven much of the inflation this year, other factors have played a role as well — including stimulus packages that helped pull the U.S. out of its economic hole earlier than expected.

“I place much more weight on fiscal stimulus,” Jason Furman, an economics professor at Harvard, told Bloomberg. “I don’t know how you argue that you got dramatically faster real growth, but you didn’t get any faster price growth.”

This isn’t a new theory, by the way. CNN broached the topic back in April, posing the question: “Is inflation a temporary sugar rush from stimulus or is it here to stay?”

Make Your Money Work for You

In July, GOBankingRates also reported on the relationship between stimulus money and inflation, noting that there’s “no doubt” that the excess money flooding into the economy had at least some effect on pushing prices higher in 2021.

So what does all of this mean for American consumers? As Bloomberg noted, many analysts downplay fears that inflation could spiral out of control like it did in the 1970s, in part because monetary policy can rein it in.

See: Fourth Stimulus Checks Are Coming From These States — Is Yours on the List?Find: Missing a Stimulus Check? Here’s How to Get Your Payment

The main fear now is that even temporary inflation could make it harder for President Joe Biden to pass his $3.5 trillion infrastructure program for cleaner energy and better childcare.

If there’s high inflation in the U.S., that could help discredit fiscal policy,” Furman said.

More From GOBankingRates


See Today's Best
Banking Offers