By Curtis Dubay, Senior Economist, U.S. Chamber of Commerce
When the Biden Administration or others suggest inflation is happening because businesses are price gouging, they are ignoring the hard and fast laws of supply and demand in a free enterprise system as well as how federal policies impact the economy.
Prices are rising for a variety of reasons, including the supply chain bottlenecks, workforce shortages, and excessive fiscal stimulus. Supply chain issues and the worker shortage are raising input costs for businesses. At the same time, fiscal stimulus from the various COVID packages has left Americans sitting on nearly $3 trillion of excess savings over and above the pre-COVID baseline, which is fueling increased demand.
More money chasing fewer goods is always a recipe for inflation.
Policymakers could make matters even worse by, for example, enacting the so-called “Build Back Better” bill. Over the next year plus, the reconciliation bill will increase inflationary pressures because of its deficit financed spending, transfer payments and tax cuts.
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