Experts warn California’s ‘inflation relief’ could grow prices

The “inflation relief ” package championed by Gov. Gavin Newsom and Democratic legislative leaders could have the opposite effect, pushing inflation — now at its higher level in 40 years — even higher, top economists say.

“One-off tax holidays or rebates which put more money in people’s pockets without doing anything to boost supply are inflationary,” said Jared Walczak, vice president of state projects at the Tax Foundation, a Washingtonbased research group.

Gov. Newsom and Democratic legislative leaders have agreed on a $17 billion relief package that includes $9.5 billion in inflation relief funds. An estimated 17.5 million California taxpayers will receive between $200 and $1,050 by early next year.

Amounts will depend on income and family size.

The Bee contacted economists familiar with California. All but one saw the plan as having the possibility of adding to inflation.

“Any increases in government spending will generally increase inflationary pressures,” said Michael Shires, associate professor of public policy at Pepperdine University.

Newsom’s advisers said otherwise.

“It’s our view that this package will have a minimal effect on inflation — as it’s one-time and not ongoing relief — and by comparison is dwarfed by the size of the federal assistance provided during the pandemic,” said H.D. Palmer, spokesman for the state Department of Finance.

Washington sent out three rounds of stimulus payments, as well as providing other benefits, in 2020 and 2021 and inflation remained largely under control.

“While we appreciate the academic arguments over what incremental effect this might have in the long term, Californians are dealing directly with the real-time price spikes fueled by inflation — and how it’s squeezing their day-to-day budgets right now,” Palmer said.

Among the evidence he cited: As of last month, 15% of California renters were behind in their payments, and many said they were very or somewhat likely to leave their homes due to eviction.

Why are prices up so much?

Newsom and legislative leaders call their plan an “inflation relief ” package. Nationally, prices jumped 8.6% in the 12 months ending in May.