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Monday, Feb. 3, 2025

Would stopping government overspending ‘end’ post-COVID inflation?

Gabriel Vinocur, EconoFact
no

Government spending was not the sole cause of inflation following the COVID-19 pandemic; ending it involves more than just reducing spending.


President Trump approved $3.1 trillion in COVID stimulus and President Biden approved $1.9 trillion more. Estimates vary on the contribution of this spending to inflation. MIT researchers attributed 42% of post-pandemic inflation through February 2022 to the stimulus while FRED estimated it accounted for about one-third in January 2023.


Conversely, Brookings concluded in August 2024 that “the vast majority” of inflation was driven by “supply-linked factors.” These include supply chain disruptions due to COVID lockdowns and the Russian invasion of Ukraine in 2022, which made energy more expensive worldwide.


Post-pandemic inflation dropped from its 9.1% peak in July 2022 to 2.9% as of December 2024 following supply chain restorations, declining energy prices, interest rate hikes, and a cooling of consumer spending. The Federal Reserve’s target inflation rate is 2%

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