Government spending was gigantic in 2020-2021. PPP, stim checks, extended boosted unemployment, etc.
Going back to normal pre covid spending is deflationary.
What’s interesting is that the inflationary effects of the big spending boost was partially delayed. People got a lot of free fed money in 2020, but they were insecure and pessimistic so banked it, paid off debt, etc. Spending opportunities were also lower because of shutdowns.
This isn’t just a theory, Kevin Drum has been tracking this and showed a sudden huge boost to household savings in 2020 that was spent down in late 2021 and 2022.
