U.S. consumer prices have surged more than in other developed economies and one reason may be the massive government support provided to Americans during the pandemic, according to researchers at the Federal Reserve Bank of San Francisco, Bloomberg News reported. “Fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021,” wrote Òscar Jordà, Celeste Liu, Fernanda Nechio and Fabián Rivera-Reyes in the regional Fed’s weekly Economic Letter. “However, without these spending measures, the economy might have tipped into outright deflation and slower economic growth, the consequences of which would have been harder to manage,” they added. The researchers used an index of real disposable income to untangle how much support was received by U.S. households versus other OECD countries. They found two distinct peaks in the U.S. corresponding to the CARES Act, signed into law in March 2020 at the onset of COVID-19, and the American Rescue Plan Act a year later. “Both Acts resulted in an unprecedented injection of direct assistance with a relatively short duration. In contrast, real disposable personal income for our OECD sample increased only moderately during the pandemic,” they wrote. The sample included Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden and the U.K. The researchers also noted that other analysis, using different assumptions, had found a much smaller contribution to inflation from fiscal policy.
