What are Ohio economic analysts keeping an eye on as inflation grows?

Analysts in Ohio are keeping a watchful eye on certain decisions made on the federal level to address the problem of inflation, with the concern that an overreaction could cause more economic issues.

The Consumer Price Index report for May showed that inflation in the U.S. increased by 8.6% over the last 12 months, which is the largest annual increase since December 1981.

Rea Hederman, The Buckeye Institute’s vice president of policy, and Guillermo Bervejillo, Policy Matters Ohio state policy fellow, both agree that a major factor in the U.S. inflation crisis is the lack of supply.

But the two are at odds over the role federal bailouts played in driving up demand. Hederman noted that two stimulus packages — from two White House administrations — reached historic proportions.

“A lot of households actually had income go up during the pandemic because the United States had one of the largest bailout packages of any country. That's one of the reasons the United States core inflation outstripped Europe inflation,” said Hederman.

Bervejillo said the country did not feel the brunt of inflation until well after the effects of those stimulus dollars wore off. He pointed to a study by the Economic Policy Institute that followed inflation from 2020 through 2021. That study said 54% of price increases were accounted for corporate profit.

“The impact approximate relationship between the generosity of the stimulus bills and the current situation is how it was captured by the financial sector and not by not how much it reached our wallets,” said Bervejillo.

The two said the decisions made in the next couple of months could have a big impact on the future of the economy in the U.S. and Ohio.

“Is inflation shifting more from goods to services, showing up in wages? They may cause the fed to continue to raise rates faster, which will drive down consumer spending and really start to threaten the overall health of the economy,” said Hederman.

The Federal Reserve Board took action Wednesday to increase interest rates by 0.75%, the largest increase since 1994.

Hederman and Bervejillo said it’s important for the Federal Reserve to find a delicate balance.

“We're talking a huge impact on people, on people's capacity to have money to pay the things that we need. I think that I'm not optimistic in part because there is a predominance of this idea that the only response that we have is this heavy handed, fed blunt instrument kind of response,” said Bervejillo.

The two analysts also said the surging prices for gas is also causing economic ripples that effect supply and the shipment of that supply.

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