Stimulus Update: Inflation Is Up. Does That Mean Stimulus Aid Is on the Way?

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January’s inflation data contained a big surprise — not necessarily a good one. 

Inflation has been battering consumers since 2021. And while things are looking better in that regard now than they did in mid-2022, January’s inflation report contained some less-than-stellar surprises.

In January, the Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 0.5% from December. That’s a pretty big jump for a single month. And it also explains why so many consumers are still racking up debt on their credit cards and struggling financially.

Now the news of an uptick in inflation is one nobody wants to hear at this point. But could that shift lead to a round of stimulus aid for the public?

A near-term stimulus check is still unlikely

It’s easy to see why consumers might associate high levels of inflation with stimulus aid. When living costs are high, people are apt to struggle. And stimulus checks might help Americans, on an individual basis, better cope with inflation as it continues to surge.

But historically, stimulus checks have not been used as a means of targeting inflation. Rather, stimulus checks have generally come into play during periods when unemployment has been high and consumer spending has declined. That’s not the situation we’re in today.

Quite the contrary — the national jobless rate recently reached a 54-year low. And the economy added more than half a million jobs in January.

In fact, these factors actually help explain why inflation was so high last month. Because so many people were gainfully employed, they had money to spend, and that drove the cost of goods and services up.

Stimulus aid might only make the problem worse

Not only is inflation typically not a driver of stimulus checks, but sending money into Americans’ bank accounts right now is likely to only make the problem of inflation even worse. The reason we’re in this whole inflation trap is that consumer demand has exceeded the supply of available goods and services for months on end. For inflation levels to drop, consumer spending needs to decline.

But if Americans receive another generous payday from the federal government, they won’t be motivated to cut their spending. If anything, they’d probably spend that money rather than save it, thereby contributing to the problem of inflation and causing it to persist.

As such, it’s pretty much time to write off the idea of a stimulus check during the first half of 2023. It’s possible that economic conditions could decline as the year chugs along, and that unemployment levels could climb. But these aren’t things anyone should bank on or hope for.

In time, inflation should start to ease — especially as the Federal Reserve moves forward with additional rate hikes, which is a likely thing for 2023. But for now, stimulus checks aren’t the solution to soaring inflation, even though they might seem like a good one. A better bet is for those struggling to tighten their budgets and boost their income by joining the gig economy. Jobs are plentiful right now, and getting a second one is a good way to cope with higher expenses.

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