Inflation continues to dominate conversations across the U.S., even as recent data shows prices rose by just 2.6% between October 2023 and October 2024. Despite this modest figure, Americans are still grappling with a cumulative 21.4% increase in prices since February 2020, according to Bankrate. The issue of rising costs recently swayed the 2024 presidential election, delivering victory to Donald Trump as voters blamed inflation on the Democrats.
But is government spending really the culprit behind inflation, and did the Biden-Harris administration make it worse? Here’s what economists say about the complex causes of inflation and whether blame is fairly placed.
What is Inflation?
Inflation, in simple terms, is the rate at which prices rise over time, eroding consumers’ purchasing power. While inflation is a natural part of economic growth, periods of high inflation—when prices increase sharply—can strain households and businesses alike.
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Historically, annual inflation rates in the U.S. hovered between 0% and 3%. However, between 2021 and 2023, inflation skyrocketed to a 40-year high of 9.1%, leaving many Americans struggling to keep up.
What Drives Inflation?
Economists cite several factors behind the 2022 inflation surge:
The COVID-19 Pandemic
The pandemic disrupted global supply chains, creating shortages that pushed prices higher as demand exceeded supply.
Stimulus Spending
Federal stimulus checks, initiated under the Trump administration and expanded by the Biden administration, injected significant funds into the economy. While these measures cushioned Americans during the downturn, they also fueled demand, contributing to inflation.
Russia-Ukraine War
The conflict in early 2022 spiked global energy prices, with gas prices exceeding $4 per gallon. This ripple effect drove up costs for food and other essentials.
Did Government Spending Cause Inflation?
Government spending is a well-known driver of inflation when it injects excessive money into the economy. According to economists, pandemic-era stimulus bills, amounting to roughly 20% of the nation’s GDP, played a role.
Desmond Lachman, a senior fellow at the American Enterprise Institute, described this as “the largest fiscal stimulus we’ve had in peacetime,” which inevitably added pressure to rising prices.
Was Biden-Harris to Blame?
Voter frustration with inflation became a referendum on the Biden-Harris administration in 2024. However, experts suggest the blame is shared.
Mark Zandi, chief economist at Moody’s Analytics, pointed to the global pandemic as the primary driver. “The Biden-Harris policies that are on the list are at the very bottom,” he noted.
While the administration’s $1.9 trillion stimulus package in 2021 may have amplified inflationary pressures, economists emphasize that external factors like the pandemic and war in Ukraine were far more influential.
What is the Federal Reserve Doing?
The Federal Reserve has taken aggressive measures to combat inflation. After initially fueling inflation by boosting the money supply and lowering interest rates, the Fed reversed course in 2022. Interest rates have since been raised by over 5 percentage points, helping cool inflation below 4% as of mid-2023.
Fed Chair Jerome Powell credited these policies with restoring balance between supply and demand. However, inflation remains slightly above the Fed’s 2% target, indicating that the fight isn’t over.
What’s Next for Inflation?
While inflation rates have declined, lingering high prices suggest the nation’s inflation crisis has left a lasting mark. For shoppers paying nearly $2 more for a dozen eggs compared to 2020, the cumulative impact of rising costs remains a sore point.
Moving forward, policymakers must strike a delicate balance between stimulating economic growth and curbing inflation to restore financial stability for all Americans.
By examining the multifaceted causes of inflation and its ripple effects, it’s clear that assigning blame solely to the Biden-Harris administration oversimplifies the issue. Inflation, driven by global events and systemic challenges, remains a complex puzzle for economists and policymakers to solve.
