Inflation Shouldn’t Increase Because of Omicron
Lack of Stimulus Should Keep Inflation at Bay
Omicron is emerging as the next dominant variant of COVID-19, with cases spreading throughout the world. However, even if the variant causes new closures and supply-chain delays, it is not expected to push inflation higher. The reason is that there will not be a fourth round of stimulus payments to boost the economy.
When COVID-19 cases surged last year and in 2021, consumers received stimulus checks from the government,increasing the cash balances of many US households. That drove demand for products and services, pushing prices higher. However, that will not be the case this time around. There is no extra money coming to drive another surge in demand.
Less Money to Spend
Rising cases are also occurring shortly after the extra federal unemployment benefits expired. Without these benefits, economists predicted people would return to the workforce, which is what happened in November. Last month the job participation rate increased to 61.8%, marking the highest level since the pandemic started.
If Omicron continues to spread, people may be worried about health risks and less willing to return to work. That would put even more pressure on wages. Without a stimulus check, people could, in turn, rein in their spending. Demand for cars, appliances, furniture, and other goods could decline. Those three categories have driven much of the inflation spike.
Omicron Continues to Spread
Omicron is expected to be the dominant variant of COVID-19 in Europe in a few weeks, with the US following after. It is not clear what impact Omicron will have on the global economy. So far, symptoms for most people infected with the variant have been mild. For this reason, investors are betting Omicron won’t be another shock to the economy. When the Delta variant emeged it slowed down economic growth, putting a damper on recovery.
Omicron may not be the same blow for the economy that Delta was. Additionally, a lack of pandemic stimulus and the expiration of extra unemployment benefits may mean that prices won’t continue to surge, even if Omicron cases do.
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