MINNEAPOLIS — State leaders said they would like to give taxpayers rebate checks, which means some families could have a few thousand extra dollars in their pockets.
But economists said there could be a counter-intuitive effect that would cause inflation to go up.
They said the big question is whether or not the money that would go to taxpayers would cancel out its inflationary impact.
Governor Tim Walz proposed a tax rebate that could give thousands of dollars to families who qualify. Republican lawmakers have a plan that would give taxpayers even more money.
Shoppers said they could use the help.
"Groceries are way more expensive than they have been," said Patty Whiting. In her Costco cart, she had a handful of things for a hundred dollars.
"I'll go to three, or four different places to find the best deals," she said.
Whiting said she likes the idea of the rebate checks and other shoppers expressed the same views.
But if more money goes into the pockets of taxpayers, economists said that could drive up the prices of things they are already struggling to afford.
"What it does is it increases demand for products," said Mark Bergen, a professor at the University of Minnesota's Carlson School of Management. "And what that means then is there's less incentive for firms to want to cut prices."
He said the impact really depends on how people would spend their money.
Whiting said she would like to go on a vacation, especially at this point in the winter.
"I'd probably spend it on food because definitely, prices are definitely going up," said another shopper, Wenling Chen.
If shoppers like Chen and Whiting spend their checks right away, Bergen said it would drive prices up or at least cause those prices to inflate back down at a slower pace in those industries.
But if they put the money away, the effect wouldn't be immediate. Either way, he said the negative impact on inflation won't be a big one.
But is it worth it? Bergen thinks so.
"Even though the inflationary effect is real, it's not big enough to overwhelm the value of these subsidies and the value of these rebate checks," said Bergen.
Economists seem to agree that there is a small, negative, inflationary impact when it comes to rebate checks.
"I don't think that when the Federal Reserve gets together to meet that state rebate checks will be what makes the decision about whether to raise interest rates," said Tyler Schipper, an Associate Professor in the Department of Economics at the University of St. Thomas.
However, Schipper said he believes leaders and policymakers should be thinking about potential impacts.
Federal Reserve Bank of Minneapolis President Neel Kashkari said at an event earlier in the month that while rebate checks sound good to taxpayers, it gives him pause.
"As a monetary policymaker that sounds like more stimulus," said Kashkari. "And that's putting more money in people's pockets to go out and spend on airplane tickets and food and buying things."
While multiple economists said that there will be a small, negative inflationary impact if rebate checks are distributed, economics professor Louis Johnston with the College of St. Benedict isn't convinced the pluses cancel out the minuses.
"That might be a wash," said Johnston. "The extra income that you get in dollar terms might get washed out by the higher prices that you have to pay."
Johnston said that the surplus could still have an inflationary impact whether or not it goes to taxpayers.
"Anything that stimulates demand is something that creates inflationary pressure," he said. "It all depends on whether it gets spent. It doesn't matter if it's the government, it doesn't matter if it's households. No matter who spends it, it could be inflationary. "
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