Inflation has been on everyone’s mind, with prices rising 2.6% between October 2023 and the same month in 2024. The question remains: does government spending cause inflation? Economists say yes, federal spending likely contributed to the 2022 inflation crisis.
The COVID-19 pandemic was cited as a primary cause by most economists, but some point to stimulus efforts, including President Biden’s $1.9 trillion bill and two prior rounds of stimulus checks sent by the Trump administration. These measures injected large amounts of money into the economy, boosting demand and prices.
However, not all economists blame the Biden-Harris administration for inflation. Some say the global pandemic was the main culprit, with the administration’s policies at the bottom of the list.
The Federal Reserve, led by Chair Jerome Powell, has been battling to bring inflation back down to its target rate of 2%. The central bank raised interest rates by more than 5 full percentage points to combat rising prices. While some analysts credit the Fed with success, others say the approach may have worsened the situation.
To understand inflation, one must consider the Consumer Price Index (CPI), which measures price changes over time. By subtracting the CPI at a start date from the end date and dividing by the start date, economists can calculate the inflation rate. For example, using the CPI in 1990 and 2010, an inflation rate of 66.8% would be calculated.
In conclusion, while government spending is not the sole cause of inflation, it likely contributed to the 2022 crisis. The Biden-Harris administration’s policies, along with the Federal Reserve’s response to the pandemic, are among the factors that economists point to as causes of rising prices.
Source: https://eu.usatoday.com/story/money/2024/11/24/what-causes-inflation-government-spending/76429987007