Who or What is to Blame for Inflation in the United States?

Robert G. Lynch • July 19, 2022

In May of 2022, prices were 8.6% higher than a year ago, a rate of inflation that the United States has not experienced in over 40 years.

Consumers are seeing this inflation in higher prices for gas, food, cars, housing, baby formula, and just a beer at the local bar. Reasonable people are asking themselves, what the hell is going on?

I will explain what inflation is, the main causes of inflation, and the facts about inflation rates in the U.S. over the past 40 years, and then dive into the debate over its cause.

Inflation is a measure of the average increase in the prices of goods and services over a specific time period, such as one year. Because Americans buy and sell millions of products over the course of a year, the prices of some of those goods will rise more than the average, others will rise less than the average, and some may even fall. For example, in May of 2022, although average prices were 8.6% higher, gasoline prices were up 48.7%, clothing was only 5% more expensive, and smartphone prices were down 19.9%.

So, what causes inflation? In general, inflation is caused by imbalances between the quantity of goods and services that businesses produce (supply) and the quantity of goods and services that people, businesses, and governments want to buy (demand). If production falls short of what people seek to buy, then shortages develop and prices rise. Inflation appears when demand outstrips supply.

The U.S. had a nasty period of inflation in the 1970s and ‘80s. Inflation hit double digits in 1979 and 1981, and a 60-year high of 13.5% in 1980, the highest annual rate of inflation since 1920. Between 1982 and 2021, the annual inflation rate fluctuated between a high of 6.1% in 1982 and a low of negative 0.4% in 2009. We do not know yet what the inflation rate will be for 2022 because prices may continue to rise or could fall during the second half of the year. However, it would not be unreasonable to suspect that the annual inflation rate will be the highest it has been since the early 1980s.

Who or what is to blame for rising prices? Was it Joe Biden and the Democrats who passed a $1.9 trillion covid-19 related stimulus bill (the American Rescue Plan Act)? Were Republicans also to blame after they helped Democrats pass a $1.2 trillion infrastructure spending bill? Didn’t all that spending increase demand by over $3.1 trillion and cause demand to far exceed supply in 2022, thereby creating massive shortages and a subsequent 8.6% price increase?

These government spending programs probably did contribute to the recent inflation, but only to a relatively small part of it. Why? First, most of the $1.9 trillion ARPA spending occurred in 2021 when inflation was moderate, not in 2022 when inflation was high, and the remaining funds will be spent over the next four years. Thus, ARPA spending is adding little to total demand in 2022, a year during which total demand is expected to exceed $25 trillion.

Likewise, the $1.2 trillion infrastructure bill is spread over 10 years and almost none of the spending has happened, or added to demand, thus far in 2022. Second, a significant part of the additional spending facilitates the private sector’s production of goods and services, thereby expanding supply. Third, several economists have estimated the inflationary impact of this spending and found that it was small.

For example, Mark Zandi, an economic advisor to former Sen. John McCain, estimated that the ARPA covid relief bill contributed only 0.1% to the May 2022 over May 2021 inflation rate. In other words, Zandi estimated that the inflation rate would have been 8.5% instead of 8.6% if the ARPA bill had not been passed. Economists at the Federal Reserve Bank of San Francisco estimated that the combination of the two covid relief bills that were signed into law by President Trump and the ARPA bill signed by President Biden increased inflation in 2021 by 3% and suggested those three bills might add about 2% to inflation in 2022.

If all the Biden government spending initiatives caused only a small part of the recent inflation, then what caused the rest of the inflation? Zandi provides estimates of the factors that contributed to the 8.6% inflation that occurred between May of 2021 and May of 2022.

Foremost among these was the Russian invasion of Ukraine which pushed up the prices of oil, gas, metals, agricultural goods, and other commodities by choking off Russian and Ukrainian exports of these goods. According to Zandi, the Russian invasion added 3.5 percentage points to U.S. inflation.

Next was the supply side effects of the covid-19 pandemic which disrupted supply chains, added expensive business reopening costs, and contributed to labor shortages, all of which reduced the supply of goods and services. The combination of these supply side effects added 2 percentage points to our inflation rate.

Third on his list was the shortage of affordable housing that pushed up rental prices and contributed 0.6 percentage points to inflation.

These three factors explain 6.1 percentage points of our May over May inflation rate, with all other causes of inflation contributing the remaining 2.5 percentage points.

Had Russia not invaded Ukraine and had there been no pandemic and no housing crisis, the inflation rate in the United States would be almost exactly what it has been on average for the past 30 years, about 2.5 %.

Finally, what role has price gouging by giant corporations played in the inflation story? Some economists think it plays little or no role, but others note that corporate profits are at record levels and reflect a deliberate policy to restrict the supply of goods.

Research by economist Josh Bivens at the Economic Policy Institute argues that corporate price increases have contributed significantly to inflation. Similarly, economists at the Federal Reserve Bank of Boston have documented a recent and substantial increase in corporate concentration in the U.S. economy, where the five largest firms in many industries are capturing ever larger shares of total sales. They conclude that the recent rise in industry concentration is “an amplifying factor” in our recent inflation.

The bottom line is that the main causes of our high inflation have been the Russian invasion of Ukraine and the severe supply disruptions caused by the covid-19 pandemic. A still unresolved question is how much of the blame for inflation is due to corporate price gouging.

It is clear that inflation is likely to remain relatively high as long as the war in Ukraine continues and the pandemic lingers. In addition, unpredictable events — an expansion of the war, political instability, or climate related catastrophes — could cause further spikes in inflation. The good news is that there are steps we can take to ease inflation, provided that we have the political will to act on them.

Dr. Robert G. Lynch is the Young Ja Lim Professor of Economics at Washington College. His research focuses on analyzing the effectiveness of federal, state, and local government policies in promoting economic growth and creating jobs.

< Older Post

Newer Post >

Mail

Common Sense for the Eastern Shore

Megan Outten Launches Campaign for Wicomico County Council, District 7

By Friends of Megan Outten • July 29, 2025

Megan Outten, a lifelong Wicomico County resident and former Salisbury City Councilwoman, officially announced her candidacy recently for Wicomico County Council, District 7. At 33, Outten brings the energy of a new generation combined with a proven record of public service and results-driven leadership. “I’m running because Wicomico deserves better,” Outten said. “Too often, our communities are expected to do more with less. We’re facing underfunded schools, limited economic opportunities, and years of neglected infrastructure. I believe Wicomico deserves leadership that listens, plans ahead, and delivers real, measurable results.” A Record of Action and A Vision for the Future On Salisbury’s City Council, Outten earned a reputation for her proactive, hands-on approach — working directly with residents to close infrastructure gaps, support first responders, and ensure everyday voices were heard. Now she’s bringing that same focus to the County Council, with priorities centered on affordability, public safety, and stronger, more resilient communities. Key Priorities for District 7: Fully fund public schools so every child has the opportunity to succeed. Fix aging infrastructure and county services through proactive investment. Keep Wicomico affordable with smarter planning and pathways to homeownership. Support first responders and safer neighborhoods through better tools, training, and prevention. Expand resources for seniors, youth, and underserved communities. Outten’s platform is rooted in real data and shaped by direct community engagement. With Wicomico now the fastest-growing school system on Maryland’s Eastern Shore — and 85% of students relying on extra resources — she points to the county’s lagging investment as a key area for action. “Strong schools lead to strong jobs, thriving industries, and healthier communities,” Outten said. “Our schools and infrastructure are at a tipping point. We need leadership that stops reacting after things break — and starts investing before they do.” A Commitment to Home and Service Born and raised in Wicomico, Megan Outten sees this campaign as a continuation of her lifelong service to her community. Her vision reflects what she’s hearing from neighbors across the county: a demand for fairness, opportunity, and accountability in local government. “Wicomico is my home; it’s where I grew up, built my life, and where I want to raise my family,” Outten said. “Our county is full of potential. We just need leaders who will listen, work hard, and get things done. That’s what I’ve always done, and that’s exactly what I’ll continue to do on the County Council.” Outten will be meeting with residents across District 7 in the months ahead and unveiling more details of her platform. For more information or to get involved, contact info@meganoutten.com

“Turtles All The Way Down”

By John Christie • July 29, 2025

Way back in 1935, the Supreme Court determined that independent agencies like the Consumer Product Safety Commission (CPSC), the National Labor Relations Board (NLRB) and the Merit Systems Protection Board (MSPB) do not violate the Constitution’s separation of powers. Humphrey’s Executor v. United States (1935). Congress provided that the CPSC, like the NLRB and MSPB, would operate as an independent agency — a multi-member, bipartisan commission whose members serve staggered terms and could be removed only “for neglect of duty or malfeasance in office but for no other cause.” Rejecting a claim that the removal restriction interferes with the “executive power,” the Humphrey’s Court held that Congress has the authority to “forbid their [members’] removal except for cause” when creating such “quasi-legislative or quasi-judicial” bodies. As a result, these agencies have operated as independent agencies for many decades under many different presidencies. Shortly after assuming office in his second term, Donald Trump began to fire, without cause, the Democratic members of several of these agencies. The lower courts determined to reinstate the discharged members pending the ultimate outcome of the litigation, relying on Humphrey’s , resulting in yet another emergency appeal to the Supreme Court by the administration. In the first such case, a majority of the Court allowed President Trump to discharge the Democratic members of the NLRB and the MSPB while the litigation over the legality of the discharges continued. Trump v. Wilcox (May 22, 2025). The majority claimed that they do not now decide whether Humphrey’s should be overruled because “that question is better left for resolution after full briefing and argument.” However, hinting that these agency members have “considerable” executive power and suggesting that “the Government” faces greater “risk of harm” from an order allowing a removed officer to continue exercising the executive power than a wrongfully removed officer faces from being unable to perform her statutory duty,” the majority gave the President the green light to proceed. Justice Kagan, joined by Justices Sotomayor and Jackson, dissented, asserting that Humphrey’s remains good law until overturned and forecloses both the President’s firings and the Court’s decision to award emergency relief.” Our emergency docket, while fit for some things, should not be used to “overrule or revise existing law.” Moreover, the dissenters contend that the majority’s effort to explain their decision “hardly rises to the occasion.” Maybe by saying that the Commissioners exercise “considerable” executive power, the majority is suggesting that Humphrey’s is no longer good law but if that is what the majority means, then it has foretold a “massive change” in the law and done so on the emergency docket, “with little time, scant briefing, and no argument.” And, the “greater risk of harm” in fact is that Congress provided for these discharged members to serve their full terms, protected from a President’s desire to substitute his political allies. More recently, in the latest shadow docket ruling in the administration’s favor, the same majority of the Court again permitted President Trump to fire, without cause, the Democratic members of another independent agency, this time the Consumer Product Safety Commission (CPSC). Trump v. Boyle (July 23, 2025). The same three justices dissented, once more objecting to the use of the Court’s emergency docket to destroy the independence of an independent agency as established by Congress. The CPSC, like the NLRB and MSPB, was designed to operate as “a classic independent agency.” In Congress’s view, that structure would better enable the CPSC to achieve its mission — ensuring the safety of consumer products, from toys to appliances — than would a single-party agency under the full control of a single President. “By allowing the President to remove Commissioners for no reason other than their party affiliation, the majority has negated Congress’s choice of agency bipartisanship and independence.” The dissenters also assert that the majority’s sole professed basis for the more recent order in Boyle was its prior order in Wilcox . But in their opinion, Wilcox itself was minimally explained. So, the dissenters claim, the majority rejects the design of Congress for a whole class of agencies by “layering nothing on nothing.” “Next time, though, the majority will have two (if still under-reasoned) orders to cite. Truly, this is ‘turtles all the way down.’” Rapanos v. United States (2006). * ***** *In Rapanos , in a footnote to his plurality opinion, former Supreme Court Justice Scalia explained that this allusion is to a classic story told in different forms and attributed to various authors. His favorite version: An Eastern guru affirms that the earth is supported on the back of a tiger. When asked what supports the tiger, he says it stands upon an elephant; and when asked what supports the elephant, he says it is a giant turtle. When asked, finally, what supports the giant turtle, he is briefly taken aback, but quickly replies "Ah, after that it is turtles all the way down." John Christie was for many years a senior partner in a large Washington, D.C. law firm. He specialized in anti-trust litigation and developed a keen interest in the U.S. Supreme Court about which he lectures and writes.

“Andy Harris Just Made the Most Dangerous Vote of His Career”

By Shore Progress, Progessive Maryland, Progressive Harford Co • July 15, 2025

Marylanders will not forget this vote.

How Many Will Be Kicked Off Medicaid in MD-01 Because of Andy Harris?

By Jan Plotczyk • July 9, 2025

More than 30,000 of our neighbors in Maryland’s first congressional district will lose their health insurance through the Affordable Care Act and Medicaid because of provisions in the GOP’s heartless tax cut and spending bill passed last week.

Six Reasons Why the House Budget Bill Will Hurt Rural America

By Michael Chameides, Barn Raiser • May 21, 2025

Right now, Congress is working on a fast-track bill that would make historic cuts to basic needs programs in order to finance another round of tax breaks for the wealthy and big corporations.

Who Will SNAP Cuts Affect in Maryland? On the Eastern Shore?

By Catlin Nchako, Center on Budget and Policy Priorities • May 21, 2025

The House Agriculture Committee recently voted, along party lines, to advance legislation that would cut as much as $300 million from the Supplemental Nutrition Assistance Program. SNAP is the nation’s most important anti-hunger program, helping more than 41 million people in the U.S. pay for food. With potential cuts this large, it helps to know who benefits from this program in Maryland, and who would lose this assistance. The Center on Budget and Policy Priorities compiled data on SNAP beneficiaries by congressional district, cited below, and produced the Maryland state datasheet , shown below. In Maryland, in 2023-24, 1 in 9 people lived in a household with SNAP benefits. In Maryland’s First Congressional District, in 2023-24: Almost 34,000 households used SNAP benefits. Of those households, 43% had at least one senior (over age 60). 29% of SNAP recipients were people of color. 15% were Black, non-Hispanic, higher than 11.8% nationally. 6% were Hispanic (19.4% nationally). There were 24,700 total veterans (ages 18-64). Of those, 2,200 lived in households that used SNAP benefits (9%). The CBPP SNAP datasheet for Maryland is below. See data from all the states and download factsheets here.