Link Between Government COVID-19 Policies and Inflation

Helen Raleigh writes at the Federalist about the role pandemic-inspired government policies have played in spurring inflation.

Besides food, gas, and cars, another category that significantly affects American families and American businesses is lumber. The price of lumber has gone up 340 percent since the lockdowns began. As of May 7, the cost per thousand board feet of lumber soared to $1,686, an all-time high. This surge is partly the result of a supply-demand mismatch caused by government policies.

Last year, government lockdowns caused many mills to halt production or even go out of business. Simultaneously, the demand for lumber went up when Americans who were forced to shelter at home rushed to buy materials for home improvement projects. Then the Federal Reserve responded to the lockdown-induced economic recession with near-zero interest rates, which contributed to a housing boom. This government-driven demand for DIY projects and new homes has exacerbated the lumber shortage and together driven up the price of lumber.

The high cost of lumber, in turn, has made new homes more expensive. According to the National Association of Home Builders (NAHB), expensive lumber costs now add $36,000 to the average of new homes. NAHB Chairman Chuck Fowke said in a statement. “This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth.” …

… While larger businesses may either have more capacity to absorb inflation or can afford to pass on higher costs to consumers, inflation hurts everyday working people the most because they have less ability to withstand price increases on a limited income. So they resort to penny-pinching: buying less than they need; switching from higher-quality brands to lower quality but cheaper brands; and postponing or foregoing specific expenditures such as eating out at restaurants or taking trips to visit friends or family. Since consumer spending drives about 70 percent of the U.S. economy, when consumers are cutting back, the U.S. economy will suffer.