Inflation Series: Part 3 Government spending is inflationary
While the peak pandemic stimulus spending is ebbing, the level of government spending appears to be stabilizing at a new higher level. On an absolute level, government spending never seems to decline; it just rises at variable levels of steepness. On a relative basis compared to GDP, US Federal spending was ~20% of GDP prior to 2008, stabilizing at 22% after the financial crisis. Now it appears to be stabilizing at 24% of GDP after the pandemic crisis.
Government spending is a drag on real economic growth because dollars are removed from the private sector by either taxation or debt driven spending. I'm not saying this is good or bad, but as a policy choice, it implies lower growth and higher inflation going forward.
Chief Investment Officer
Lloyds Intrepid Wealth Management
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