Boots & Sabers

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Owen

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0726, 14 Jun 22

Government Spending is Driving U.S. Inflation

You have to go to the foreign media to wade through the spin. Of course, this used to be common knowledge… printing a lot of money and dumping it into the economy drives up inflation. It happens every time.

Last year, businesses around the world started raising prices at a pace not seen in decades. Among major economies, one country was hit the worst – the United States.

Prices jumped at an annual rate of 4.7% last year – faster than any other country in the Group of Seven (G7) advanced economies, according to the Organisation for Economic Cooperation and Development (OECD). In the UK, for example, inflation was just 2.5%.

 

Last month, inflation in the US hit 8.6%, one of the highest rates in the world.

 

Many of the forces driving inflation last year – such as supply disruptions from Covid and higher food prices after severe storms and drought hurt harvests – were not unique to the US.

 

The reason the US fared worse? In two words – high demand.

That was driven by the massive $5tn (£4.1tn) in spending the US government approved to shield households and businesses from the economic shock of the pandemic.

 

A recent study by the Federal Reserve Bank of San Francisco concluded that pandemic relief packages probably contributed to 3 percentage points of the rise in inflation until the end of 2021 – a factor that goes a long way to explaining why US inflation outpaced the rest of the world.

 

Oscar Jorda, senior policy adviser at the bank and one of the people who worked on the study, cautioned against reading too much into the exact percentages, but said the overall picture is clear.

 

“These programmes… were a considerable infusion of liquidity into consumers’ pockets at a time when perhaps industry wasn’t quite ready to respond to an increase in demand,” he said in an interview in May. They “signified a big push of what I would call demand push inflation”.

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0726, 14 June 2022

1 Comment

  1. Billiam

    It happens again and again and neither Party is willing to do the hard work of stopping it. Neither is the majority of the public. They keep doing the same thing and electing the same idiots over and over again. This one is going to be very nasty. Will enough learn from it? I doubt it. The addicts of ‘Free Money’ haven’t reached rock bottom yet. The West is reaping what it continues to sow.

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