Stimulus check: can a new payment help combat inflation in the country?

As inflation continues to rock the United States, many households are losing purchasing power. Prices are up on average 8.5 percent compared to last year, with increasing fuel costs driving the surge.

The Bureau of Labor Statistics reported that the “gasoline index rose 18.3 percent in March and accounted for over half of the all items monthly increase.”

As fuel prices increase, so do transportation costs for firms. Many companies pass along this increased cost to the consumer by charging higher prices.

What is clear is that the current bout of inflation seen in the market is not affecting all products in the same way. The Consumer Price Index decreased by 0.4 percent in March when energy and food commodities were removed from the average.

What will the federal government do to counter inflation?

In response to increasing inflation, the Federal Reserve has announced that it will raise interest rates.

What concerns some economists is that while prices are rising at historic levels, this is unlike other periods of high inflation seen in the United States. The root cause, increased fuel prices and a lower supply of consumer goods, are increasing costs and leading to shortages. This is a classic recipe for inflation, noted economist Jeffrey Frankel when describing how the collapse of global supply chains led demand to outpace supply, causing prices to increase.

“Although some supply shortages were anticipated as the global economy reopened after the COVID-19 lockdowns, they have proved more pervasive, and less transitory than had been hoped,” wrote Nobel Prize-winning economist Joseph Stiglitz.

Stiglitz believes that it could be short-sighted for the Federal Reserve to begin engaging in interest rate hikes as it could leave those “at the bottom of the income scale” to “suffer the most.” When interest rates increase, money begins to move more slowly throughout the economy. This can make it more difficult for firms and individuals to gain access to credit, and in many cases, there is an associated rise in unemployment. Many economists are warning that an interest rate increase could stunt the economic recovery, which has empowered workers for the first time in decades, giving them greater leverage when negotiating salaries and benefits.

Could a stimulus check help stabilize the situation?

Rather than a stimulus check, some economists have floated the idea of a “one-time “inflation adjustment” tax cut for lower- and middle-income households.” Stiglitz believes that this tax cut “could be financed by taxing the monopoly rents of the oil, technology, pharmaceutical, and other corporate giants that made a killing from the crisis.”

A more significant tax return could support families in the short term to counter the impact of increased prices. While prices are up more than eight percent, wages have only increased 4.5 percent in the last year.

However, many experts also see this crisis as an opportunity to make structural fixes to the US economy to protect households moving forward. One proposal could be that has emerged calls for the anchoring consumer price index changes to the amount of nutritional assistance distributed to families through programs like SNAP and WIC.