Quote:
Originally Posted by CliffFletcher
The fact CERB mostly ended up in the hands of businesses doesn’t mean that the CERB that ended up in the hands of individuals hasn’t played a big part in inflation in anglo countries. Households in Canada and the U.S. (including low-income households) built up record savings during the pandemic. Those savings feeding back into the economy are a driver of inflation.
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You're connecting two largely unrelated things together. Individual CERB payments helped cover a portion of missing income that would have been earned anyway (for that vast majority of recipients, anyway), so it was unlikely to be a huge driver of increased savings vs. the counterfactual where COVID didn't exist.
The bigger factors were:
1) A huge reduction in avenues for discretionary spending (travel, restaurants, attractions, etc.) led people to spend less during the pandemic.
2) People were more cautious with money even where they could spend it because of the economic uncertainty.
3) In the absence of the normal consumables they could spend their money on, people put their money into capital assets (real estate, equities, etc.) which saw their values inflate in the the last 2 years as a result of government stimulus for businesses and their maintenance of historically low interest rates.
Those three things worked together to increase household savings. But given the demographics of CERB recipients (generally younger and low income people), it's hard to see how CERB had a significant effect on increasing household savings.
And or course, simple math bears that out. There were ~$70B in CERB payments, whereas the estimated increase in savings vs. the counterfactual in Canada was about $300B. So even if every single cent that people received in CERB went straight into savings and not towards food, rent, etc., that would still only really explain a relatively small portion of the increase. And obviously that's not the case, so its impact is even smaller.