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Economists Can’t Agree On The Major Cause of Inflation

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Even as Americans continue to experience higher prices, experts remain divided as to what the major cause of inflation is. Until now, many economists field conflicting views on what is driving up prices of goods and services.

RELATED: January Inflation Rate Hits 7.5%, Sets New 40-Year Record High

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Apart from differing viewpoints on the major cause of inflation, experts are also wondering when the upward trend will end. Currently, US inflation is at a record 40-year high.

Many Americans would like to know the exact reason why inflation continues to go higher. Many blame the pandemic for shutting down many businesses.

However, finding out what exactly is putting pressure on the dollar’s purchasing power remains elusive. 

Among the suspects are supply chain issues, increased demand, higher production costs, and the flood of relief money.

In addition, politics is also convincing followers to blame the $1.9 trillion American Rescue Plan of 2021 as the major cause of inflation. For political economists, they can safely say that all factors play a role in higher prices of goods.  

Confluence of Factors

David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy, agrees that many reasons are in play. “There’s a confluence of factors — it’s both. There’s a lot of things that pushed up demand,” he said. At the same time, “a lot that’s kept supply from responding accordingly, as a result, we have inflation.”

Wessel also said that demand during the pandemic surged because of aggressive monetary policies. For COVID, this meant a flood of money that reached epic proportions.

During the Obama administration, the stimulus package to aid the 2008 recession totaled $787 billion. For the coronavirus pandemic, the Trump and Biden administrations collectively released around $5 trillion. 

Supply Chain Remains Problematic

That huge flood of stimulus money helped create demand for American goods and services. However, the businesses that supplied the goods ran into trouble keeping up with demand.

Even as too much money became available, Wessel said the government’s response was necessary. 

Meanwhile, Dean Baker, co-founder of the Center for Economic and Policy Research, agrees that the stimulus aid helped in the recovery.

However, while the relief money had a positive effect on the economy, Americans focused on buying products rather than services. These purchases of couches, cars, cycles, and computers drove up demand.

Meanwhile, the supply chain remained hampered with raw material and delivery issues. “I see it as secondary,” Baker said, “but there’s no doubt it was a factor in driving inflation.”

Biden Overheated The Economy

Other experts believe that President Joe Biden overheated the economy as he ignored signs of recovery. Brian Reid, a senior fellow at the Manhattan Institute, believed the federal government overreacted.

“Fiscal policy has been extraordinarily aggressive, and the main example was the American Rescue Plan that was enacted last March,” he said. The government “shot a $1.9 trillion bazooka into a $420 billion output gap,” he noted. 

However, the current administration insists that the American Rescue Plan did not drive up inflation. Instead, it said that supply chain problems drove up prices as demand outpaces supply.

The White House also noted that other countries are facing similar inflation problems. It concluded that the current problem is not an issue of policy.

Instead, it’s a collective reality many countries face because of the pandemic. 

Watch the PBS NewsHour reporting on what’s driving US inflation and how price pressures could be reduced:

What do you think is the main cause of inflation?

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What do you think is the main cause of inflation in the United States? Do you agree that the government botched the recovery program by flooding money? Or, do you think supply chain issues limit the availability of goods?

Tell us what you think. Share your comments below.

7 Comments

7 Comments

  • John Francis Rahill says:

    1. Keystone Pipeline… we went from energy independence to energy dependence.
    2. Supply Chain incompetence
    3. BBB… raising taxes vs business independent

  • Russell Alvey says:

    We need to get Biden out of office now and the other top 5 that is inline to be president. When Biden is removed we need to get Trump back in to get this country back on it’s way too recovery.

  • Michael Vanderschuit says:

    When a government prints trillions of dollars, flooding the economy with excess currency, it devalues it. That’s inflation. Scarcity increases currency value. We need to pay off our 30 trillion National Debt, pass a Balanced Budget Amendment, return to the Gold Standard. The interest alone on the National Debt is enough to handicap our recovery.

  • Matthew Weber says:

    Plandemic/Scamdemic, Biden. That’s why. People being fired for not masking or getting poison jab’d. Closing down businesses that require people being present to do business because of mask and jab requirements. Supply chains shut down because of jab requirements from Obama/biden coup de tat in power. Obiden regime destroyed our energy independence, shut down oil and coal so now it cost 2X as much to fill my tank, 3X as much to heat my house, EVERYTHING costs more because of inflated energy expenses; trucks pay more for gas, so EVERYTHING they deliver costs more to cover expenses. The socialist democrat coup de tat party in power is the SOLE reason for the countries demise. TRUMP IS THE REAL PRESIDENT AND HE ALONE CAN FIX THIS DISASTER!!! LETS GO BRANDON!

  • Glyn Sable says:

    As I’ve said for a while now.

    When you print trillions to send billions overseas to get millions in kickbacks using any inflated or even fabricated crises for ages, yes the purchasing power weakens.

    This is also likely on purpose.

  • Sam says:

    Let me help, Xiden.

  • Gregory K Soderberg says:

    The creation of all money as interest-bearing debt forces Americans and their government into debt for money to exist in violation of the American spirit, intent, foundation and its 13th Amendment. The debt must constantly grow, can never be paid, causes a constant rise in the costs of living, reduces purchasing power and makes saving impossible for most. Pass the American Transportation Act at http://www.debtfreemoney.org

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