How Can State Stimulus Checks Negatively Impact Inflation?

Veronica Charnell Media

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Is there something wrong with the United States System that helping your fellow Americans' financially can cause inflation to last longer?

Some Financial Experts believe giving people who need additional assistance will cause them to spend more money which negatively impacts inflation. Around a dozen states are handing out tax rebates to residents who qualify. Some states are calling them inflation relief checks and every state is handling them differently.

In California, taxpayers will get direct payments up to $1,050, depending on their income. In Indiana, all taxpayers will get $125.

It’s easy to compare these state programs to those federal stimulus payments we got at the beginning of the pandemic.

Joshua Hausman, a professor of public policy at the University of Michigan said, “ I don’t know that I love the word Stimulus in this context,” These state programs aren’t supposed to stimulate the economy. They’re supposed to help people deal with rising prices. “This is not a good idea if you care about inflation, because the way inflation falls is for people to spend less, and so sending them money does exactly the opposite.”

What is Inflation?

In economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices do not all increase at the same rate, the consumer price index(CPI) is often used for this purpose. The employment cost index is also used for wages in the United States.

According to the Department of Labor, unemployment insurance claims for the week ending July 2nd initial claims were 235,000 an increase of 4,000 from the previous week of 231,000. Some Americans are forced to move in with family members because they are no longer afford to pay their rent. Rent across the United States has increased dramatically along with gas prices and groceries. Overall, The cost of living has increased across the United States, but the wages have not dramatically increased either.

So what is wrong with this picture overall. How can a family of four or more survive in this new economy if giving them stimulus checks cause inflation to get worse? How can a person living alone and having to pay all the bills by him or herself build a savings account in this Economy? If we take time and dissect the United States Systems and how everything is structured we will discover the student loan program is not the only thing that is broken and needs to be fixed.

Wendy Edelberg is an Economist at the Brookings Institution. She recommends increasing SNAP benefits and child tax credits instead of offering more stimulus checks.

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