Is inflation Biden's or Trump's fault? The answer isn't so simple, economists say (2024)

Former President Donald Trump, left, and President Joe Biden face off in the first debate of the 2024 presidential campaign, in Atlanta, June 27, 2024.

Andrew Harnik | Getty Images News | Getty Images

The recent U.S. presidential debate saw both candidates trade barbs related to the economy. High pandemic-era inflation was among the grievances.

"He caused the inflation," Trump said of Biden during the June 27 debate. "I gave him a country with no, essentially no inflation," he added.

Biden countered by saying inflation was low during Trump's term because the economy "was flat on its back."

"He decimated the economy, absolutely decimated the economy," Biden said.

But the cause of inflation isn't so black-and-white, economists say.

In fact, Biden and Trump are not responsible for much of the inflation consumers have experienced in recent years, they said.

'Neither Trump nor Biden is to blame'

Global events beyond Trump's or Biden's control wreaked havoc on supply-and-demand dynamics in the U.S. economy, fueling higher prices, economists said.

There were other factors, too.

The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies such as pandemic relief packages also likely played a role, as might have so-called "greedflation."

"I don't think it's a simple yes/no kind of answer," said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank.

"In general, presidents get more credit and blame for the economy than they deserve," he said.

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That Biden is seen as stoking high inflation is due somewhat to optics: He took office in early 2021, around the time inflation spiked notably, economists said.

Likewise, the Covid-19 pandemic plunged the U.S. into a severe recession during Trump's tenure, pulling the consumer price index to near zero in spring 2020 as unemployment ballooned and consumers cut spending.

"In my view, neither Trump nor Biden is to blame for the high inflation," said Mark Zandi, chief economist at Moody's Analytics. "The blame goes to the pandemic and the Russian war in Ukraine."

The big reasons inflation spiked

Inflation has many tentacles. At a high level, hot inflation is largely an issue of mismatched supply and demand.

The pandemic upended the typical dynamics. For one, it disrupted global supply chains.

There were labor shortages: Illness sidelined workers. Child-care centers closed, making it hard for parents to work. Others were worried about getting sick on the job. A decline in immigration also reduced worker supply, economists said.

China shut down factories and cargo ships couldn't be unloaded at ports, for example, reducing the supply of goods.

Meanwhile, consumers changed their buying patterns.

They bought more physical stuff such as living room furniture and desks for their home offices as they spent more time indoors — a departure from pre-pandemic norms, when Americans tended to spend more money on services such as dining out, travel, and going to movies and concerts.

Cargo containers sit stacked on ships at the Port of Los Angeles, the nation’s busiest container port, in San Pedro, California, on Oct. 15, 2021.

Mario Tama | Getty Images News | Getty Images

High demand, which boomed when the U.S. economy reopened broadly, coupled with goods shortages fueled higher prices.

There were other related factors, too.

For example, automakers didn't have enough semiconductor chips necessary to build cars, while rental car companies sold off their fleets because they didn't think the recession would be short-lived, making it pricier to rent when the economy rebounded quickly, Wessel said.

As Covid cases were hitting record highs heading into 2022, further disrupting supply chains, Russia's war in Ukraine "supercharged" inflation by stoking higher prices for commodities such as oil and food around the world, Zandi said.

As a result, global inflation hit a level "higher than seen in several decades," the International Monetary Fund wrote in October 2022.

"We only have to look at the still high inflation rates in most other advanced economies to see that most of this inflation period was really about global trends ... rather than about the specific policy actions of any given government (though they did of course play some role)," Stephen Brown, deputy chief North America economist for Capital Economics, wrote in an e-mail.

Big spending bills' impact 'only clear in hindsight'

However, Biden and Trump aren't entirely without fault: They greenlit additional government spending in the pandemic era that contributed to inflation, for example, economists said.

For example, the American Rescue Plan — the $1.9 trillion stimulus package Biden signed in March 2021— offered $1,400 stimulus checks, enhanced unemployment benefits and a larger child tax credit to households, in addition to other relief.

The policy led to "some good things," such as a strong job market and low unemployment, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.

But its magnitude was greater than the U.S. economy needed at the time, serving to raise prices by putting more money in consumers' pockets, which fueled demand, he said.

"I do think President Biden bears some responsibility for the inflation that we've been living through for the past few years," Strain said.

He estimated the American Rescue Plan added about 2 percentage points to underlying inflation. The consumer price index peaked around 9% in June 2022, the highest since 1981. It's since declined to 3.3% as of May 2024.

The Federal Reserve — the U.S. central bank — aims for a long-term inflation rate near 2%.

"I think if it weren't for the American Rescue Plan, the U.S. still would have had inflation," Strain added. "So I think it's important not to overstate the situation."

However, Zandi viewed the ARP's inflationary impact as "good" and "desirable," bringing the economy back to the Fed's long-term target inflation rate after a prolonged period of below-average inflation.

Trump had also authorized two stimulus packages, in March and December 2020, worth about $3 trillion.

These so-called "fiscal policy" responses were insurance against a lousy economic recovery, perhaps overshooting after the U.S.' lackluster response to the Great Recession that mired the nation in high unemployment for years, Wessel said.

That the U.S. issued perhaps too much stimulus was the presidents' fault but "only clear in hindsight," he said.

Biden and Trump also enacted other policies that may contribute to higher prices, economists said.

For example, Trump imposed tariffs on imported steel, aluminum and several goods from China, which Biden largely kept intact. Biden also set new import taxes on Chinese goods such as electric vehicles and solar panels.

The Fed and 'greedflation'

Fed officials also have some responsibility for inflation, economists said.

The central bank uses interest rates to control inflation. Increasing rates raises borrowing costs for businesses and consumers, cooling the economy and therefore inflation.

The Fed has raised rates to their highest in about two decades, but was initially slow to act, economists said. It first increased them in March 2022, about a year after inflation started to spike.

It also waited too long to throttle back on "quantitative easing," Strain said, a bond-buying program meant to stimulate economic activity.

"That was a mistake," Zandi said of Fed policy. "I don't think anyone would have gotten it right given the circumstance, but in hindsight it was an error."

Some observers have also pointed to so-called "greedflation" — the notion of corporations taking advantage of the high-inflation narrative to raise prices more than needed, thereby boosting profits — as a contributing factor.

It's unlikely this was a cause of inflation, though it may have contributed slightly, economists said.

"To the extent anything like that happened — which I'm not sure it did — this would be a very minor factor in the inflation we had," said Strain. He estimates the dynamic would have added well less than 1 percentage point to the inflation rate.

"Companies always look for an opportunity to raise prices when they can," Wessel said. "I think they took advantage of the inflationary climate, but I don't think they caused it."

Is inflation Biden's or Trump's fault? The answer isn't so simple, economists say (2024)

FAQs

Who is to blame for current inflation? ›

So, from this research, the authors find that three main components explain the rise in inflation since 2020: volatility of energy prices, backlogs of work orders for goods and service caused by supply chain issues due to COVID-19, and price changes in the auto-related industries.

What do economists say is causing inflation? ›

What creates inflation? Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.

What is causing inflation right now? ›

At the same time, demand for some products soared: pandemic-era stimulus programs left shoppers with extra cash to spend, and everyone wanted to buy the same types of things. More recently, inflation has been driven mostly by the cost of buying or renting a home.

What are economic experts saying about inflation? ›

Economists believe inflation is the result of an increase in the amount of money relative to the supply of available goods. While high inflation is generally considered harmful, some economists believe that a small amount of inflation can help drive economic growth.

What is the biggest culprit of inflation? ›

Inflation may occur due to increases in production costs associated with raw materials or labor. Higher demand can also lead to inflation. Certain fiscal and monetary policies such as tax cuts or lower interest rates are also potential drivers.

What is the root cause of inflation? ›

More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.

Is the government causing inflation? ›

Specifically, their results showed that: 42% of inflation could be attributed to government spending.

Who started inflation? ›

Ancient China. Song dynasty China introduced the practice of printing paper money to create fiat currency. During the Mongol Yuan dynasty, the government spent a great deal of money fighting costly wars, and reacted by printing more money, leading to inflation.

Did the US printing money cause inflation? ›

Yes, the money supply and inflation are related. To combat unemployment, the Federal Reserve increases the money supply, promotes economic growth, and makes debt cheaper; however, these policies have the potential to cause inflation.

What is the number one cause of inflation? ›

Inflation is typically caused by demand outpacing supply, but the historical reasons for this phenomenon can be further broken down into demand-pull inflation, cost-push inflation, increased money supply, devaluation, rising wages, and monetary and fiscal policies.

What is the real cause of inflation in 2024? ›

Despite all the controversy, according to Fortune, economists generally agree on some of the causes behind the high inflation that has defined the economy over the last several months: The pandemic shifted consumer demand away from services toward goods, which left producers unable to keep up with demand.

Will the cost of living ever go back down? ›

But the reality is that even as the inflation rate slows, it's unlikely the cost of many individual items will decline. They just won't rise as fast. As much as it might not feel like it over the last few years, ever-rising prices can actually be a good thing in the broader economic picture.

Who is hurt more by inflation, borrowers or creditors? ›

Key Takeaways

Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

Who benefits from inflation? ›

The middle class typically benefits from inflation because the middle class typically has a lot of debt. Think of someone who owes $100,000 on a $200,000 home. Inflation makes the home more valuable and the debt relatively less onerous.

What CEOs are saying about inflation? ›

CEOs also reported feeling less assured they can cope with the challenges that inflation poses. Confidence in their ability to weather inflationary pressures dropped to 43% from 63% a year ago when they were last asked this question.

Who is responsible for controlling inflation in the United States? ›

As the Federal Reserve conducts monetary policy, it influences employment and inflation primarily through using its policy tools to affect overall financial conditions—including the availability and cost of credit in the economy.

Who decides what inflation is? ›

Rather, inflation is a general increase in the overall price level of the goods and services in the economy. Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services.

Who is in charge of price inflation? ›

A California CPI is calculated by the California Department of Finance as a population-weighted average of the BLS-published local area CPIs. The California CPI formula was developed by the California Department of Industrial Relations.

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