Are ‘Inflation Relief’ Checks Like Pouring Gas Onto Inflationary Fire?

News Analysis

As some states mull or roll out “inflation relief” in the form of checks or tax rebates in a bid to help households weather soaring prices, critics argue such measures amount to fiscal stimulus that will keep inflation higher for longer.

American households face crushing inflation that has squeezed buying power and made basic necessities less affordable.

Some states have responded by offering relief to offset the cost-of-living crunch.

‘Cha-Ching!’

In one such thrust, some 23 million Californians will receive checks of up to $1,050 as part of a $17 billion “inflation relief” package that also includes a suspension of the state’s sales tax on diesel, rental assistance, and money to cover past-due utility bills.

“Cha-ching! You just received a deposit,” California Gov. Gavin Newsom’s office wrote in a June 30 statement touting the fact that the Democrat leader had just signed a $308 billion state budget that includes $9.5 billion in tax refunds “to help address inflation.”

Other states have taken similar steps in a bid to take the edge off high prices.

Colorado officials in late June announced a $750 cashback rebate, with Gov. Jared Polis describing the measure as “real relief when Coloradans need it most” while citing “the impact of rising costs.”

Indiana plans to return a total of $1 billion to Hoosier taxpayers in the form of a $350 tax refund per individual, with Gov. Eric Holcomb saying early in June that the state’s residents have “real needs right now during this period of high inflation.”

Maine plans to dole out a round of $850 “relief checks” as residents “are grappling with the increased costs as a result of pandemic-driven inflation, ranging from higher energy costs to increased prices of everyday goods,” according to the office of Maine Gov. Janet Mills.

Other states that have introduced similar schemes to offset rising prices include Delaware, Georgia, and New Mexico.

‘This Will Only Do More Damage’

While the payments are sure to be welcomed by families struggling to cope with rising prices, critics say dumping cash onto the problem is like pouring oil onto a fire and will only add to inflationary pressures by boosting demand.

John Anthony Castro, chief executive of AiTax, an AI-based tax-preparation software platform, said in a statement on Twitter that pouring cash onto the problem of inflation inevitably serves to push prices higher.

“Imagine for a minute that everyone woke up this morning with $1 million in their bank account. Stores would have to adjust prices to reflect that; if not, one person could simply buy everything. Milk would be $500; cereal $300. That’s Inflation 101,” he wrote.

Daniel Lacalle, chief economist at hedge fund Tressis, reacted to California’s initiative in a statement on Twitter: “‘Inflation relief’ payments made with higher debt and more money printing. You cannot make this up.”

“This will only do more damage,” Sen. Ted Cruz (R-Texas) said in post on Twitter, commenting on California’s “inflation relief” checks.

‘Working Families Need Relief’

Not everyone agrees that inflation relief checks are a bad idea.

H.D. Palmer, deputy director for external affairs at the California Department of Finance, told TIME in an interview that he doesn’t buy the argument that the the checks will have a substantial impact on inflation.

“It’s our view that this package will have a minimal effect on inflation—as it’s one-time and not ongoing relief—and by comparison is dwarfed by the size of the federal assistance provided during the pandemic,” he told the outlet.

Some, like former Ohio state Senator Nina Turner, a Democrat, think the idea of inflation relief checks should be rolled out more broadly.

“This should be done on the federal level to combat inflation. Working families need relief,” she said in a post on Twitter.

‘You’re Gonna Have Inflation’

But federal stimulus is a key reason why inflation is so high, according to Stephen Moore, former economic adviser to the Trump White House.

More of the same would be like trying to put out a fire by pouring gas on it, Moore told EpochTV’s “Fresh Look America” program in a recent interview.

He argued that the $3 trillion or so in pandemic aid that has been spent so far is “what caused the massive inflation, when you just shovel money into the economy, and you borrow and you print money to pay for all of that.

“It’s clear as the sun rising, the Eastern sun setting in the west, that you’re gonna have inflation,” Moore continued.

“I’m just surprised that there were economists who were surprised about that result. And so what we need to do now is actually cut government spending, we have to have dramatic cutbacks and government spending to repair the economy.”