Stimulus Update: Inflation Is Cooling, and We Can Thank a Lack of Stimulus Aid for That

Absent stimulus funds may have helped consumers this year.

Inflation has been making life difficult for consumers for well more than a year now. During the spring of 2021, living costs started rising as Americans found themselves flush with cash on the heels of a recent stimulus round. At that same time, supply chain bottlenecks had begun to come to a head, causing an imbalance between supply and demand and creating a surge of inflation that forced many people to raid their savings and rack up large credit card balances just to make ends meet.

Because inflation has been so brutal, many Americans have been calling on lawmakers to come to the rescue with a round of stimulus checks. The last stimulus round put $1,400 checks into consumers' bank accounts, and a comparable windfall might seem appropriate given how extreme inflation has been.

But lawmakers didn't issue any stimulus checks this year, and don't have plans to. And actually, that's not a bad thing at all.

Inflation levels are finally dropping

In October, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 7.7% on an annual basis, which is clearly a large jump. However, it represents a lower annual increase than September, and that's a positive sign. If inflation levels start to drop month after month, we could get to the point where living costs reach a more moderate level by the middle or end of 2023.

Meanwhile, though some Americans are quick to criticize lawmakers for failing to issue stimulus aid this year, the reality is that a fourth stimulus round would've likely only made the problem of inflation worse. The whole reason living costs have soared stems from an excess of consumer demand relative to the supply of goods. And that excess was fueled by stimulus policies enacted in 2021.

Last year, in addition to $1,400 stimulus checks, lawmakers also boosted the Child Tax Credit, whose maximum value rose from $2,000 per child to up to $3,600. That credit was also partially paid in monthly installments, giving recipients access to their money much sooner -- and allowing them to increase their spending at a time when supply chains had slowed down.

The fact that lawmakers didn't give out stimulus aid this year may have helped inflation levels finally start to cool.

Of course, interest rate hikes on the part of the Federal Reserve may have also helped bring inflation levels downward. The Fed has been aggressively raising rates for months in an attempt to slow consumer spending and bridge that supply-demand gap. Now that its efforts seem to be paying off, it might hit the brakes on extreme rate hikes. And that, too, could benefit consumers.

There's relief in sight

It's too soon to say when inflation will reach a more "normal" level. But there are positive signs that living costs might slowly but surely grow more affordable over the coming months. And the last thing consumers need right now is a round of stimulus checks to disrupt that pattern and drive inflation back upward.