by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Contrary to claims from the White House, economists at the Federal Reserve Bank of San Francisco say President Joe Biden’s stimulus package contributed significantly to inflation.
The White House maintains the nearly $2 trillion American Rescue Plan that Biden signed into law in March 2021 did not have any effect on skyrocketing inflation, which now sits at just under 8 percent. And for months, Biden dismissed claims that the extraordinary stimulus spending raised consumer prices. Now, economists are blaming the president for raising the nation’s inflation rate by roughly 3 percentage points during his first year in office.
The Bay Area economists found that from the beginning of 2021, the core Consumer Price Index in the United States “grew from below 2 percent to above 4 percent and stayed elevated throughout 2021.” The core Consumer Price Index accounts for the cost of all goods and services with the exception of energy and food prices, which tend to be more volatile. The rate of U.S. inflation also outpaced other developed countries, including Canada, Germany, and the United Kingdom. Since the start of the pandemic, those nations’ inflation has increased at a more gradual rate from 1 percent to 2.5 percent by the end of last year.
“Though many of the pandemic distortions are common to other countries, we show that U.S. inflation has risen more quickly and increasingly diverged from inflation in other OECD (Organisation for Economic Co-operation and Development) countries,” the economists wrote. Their paper also provides models showing that “throughout 2020 and 2021, U.S. households experienced significantly higher increases in their disposable income relative to their OECD peers,” which contributed to higher demand.