Increased federal spending helped the economy bounce back during the pandemic, but it also caused a surge in inflation, research reveals.
by Betsy Vereckey
MIT Management, Sloan School
Inflation is difficult to control. Its cause is often even harder to pinpoint.
In attempting to understand the 2022 spike in inflation that followed the pandemic, some policymakers — up to and including President Joe Biden — blamed shortages in the supply chain. But a new study shows that federal spending was the cause — significantly so.
“Our research shows mathematically that the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain,” said Mark Kritzman, a senior lecturer at MIT Sloan.
In writing “The Determinants of Inflation,” Kritzman and colleagues from State Street developed a new methodology that revealed how certain drivers of inflation changed in importance over time from 1960 to 2022.