Newsom’s inflation plan could drive up prices more, experts say

SACRAMENTO — An $18.1 billion inflation relief package proposed by Gov. Gavin Newsom will put salve on key pain points for Californians most affected by rising gas and grocery prices but also likely will cause prices to tick up just a tad more, leading economists say.

The Newsom package also won’t likely stave off a possible recession, the fear of which tanked the markets on Wednesday, experts said.

Newsom’s plan includes $11.5 billion in tax refunds for vehicle owners, $933 million in retention bonuses for health care workers on the frontlines treating the COVID-19 patients and $750 million to provide free mass transit for a few months in some California cities.

If the package is approved as part of Newsom’s budget proposal, each vehicle owner would get a $400 refund for up to two vehicles.

Hospital and nursing home workers could receive as much as $1,500 in a bonus if their companies match what the state is paying out.

Economist James Wilcox of the University of California, Berkeley, said: “People who have cars are paying a lot more for gas, and it’s really hurting them. The more they’re putting into the gas tank, the less they’ve got to spend in the ... store, for example. It is painful. It’s making life more difficult for them. Giving them $400 will put some salve on that sore spot.”

There’s a tension, though, said Wilcox and Sung Won Sohn of SS Economics in Los Angeles, because state residents are going to pour this money into a consumer market that already has excruciatingly high demand for many goods and services that are in short supply.

The relief funds “will add to demand pressures, a major source of inflation for the country,” Sohn said.

He added: “From Gov. Newsom’s point of view, fiscal policy is not his responsibility. He is trying to alleviate the pain inflicted on Californians by inflation, especially for low and moderate income groups.”

Overall, prices nationally have been rising at their steepest pace in 40 years, and experts see little letup this summer. Gasoline prices nationally were up 43.6% in the last 12 months. California’s average for a gallon of regular gas hit $6.05 Wednesday, a record. A year ago, the average was $4.13. The state has for some time had the highest gas prices in the nation.

To counter this impact, especially on low- and middle-class consumers, Newsom and other state leaders are making the choice to put some surplus revenue back in the hands of consumers.