California’s $350 stimulus checks are a make-or-break bet for fighting inflation

• California Democrats approved an aid package that includes $350 stimulus checks for residents.
• The payments aim to offset the burden of soaring costs, yet they could boost inflation higher.
• Stimulus tends to fuel increased spending, and high demand has played a big role in the current inflation.

California Gov. Gavin Newsom touted his state's new round of stimulus checks as a "middle class tax rebate" meant to "help you fill your gas tank and put food on the table."

The payments could end up worsening the inflation that lifted prices in the first place.

Newsom and Democratic state legislators approved a $17 billion economic aid package on Sunday including a new round of stimulus payments for roughly 23 million Californians. Individual California residents earning $75,000 and below or couples earning $150,000 and under will receive payments of $350 per filer, as well as $350 if the filer has any dependents. That pushes the total possible sum a family can receive to $1,050.

Higher-earning Californians stand to get smaller checks as well. Individuals earning between $75,000 and $125,000 are eligible for a $250 direct payment. The same applies to couples earning between $150,000 and $250,000.

The payments are meant to ease some of the strains brought about by historically strong inflation. Prices for common goods and services surged 8.6% in the year through May, marking the fastest inflation since 1981. Where the stimulus checks doled out by the federal government in 2020 were meant to aid households thrown into lockdown, California's latest round aims to counter the loss in residents' buying power.

Yet the aid could contribute to even higher inflation. At the center of the price-growth problem is an imbalance between supply and demand. Americans are spending at near-record levels but there's just not enough goods to go around. That's led businesses to raise prices at an unusually fast pace.

Extra cash in Californians' pockets can replace some of the funds lost to higher prices, but it doesn't solve the disparity fueling such high inflation. The payments could even widen the gap by keeping consumer demand elevated. 

The Federal Reserve has been raising interest rates at the fastest pace in decades in hopes of bringing demand more in line with strained supply. Giving California residents extra cash could extend their spending spree and keep inflation elevated.

Republicans in Congress have blamed President Joe Biden's $1.9 trillion stimulus package for accelerating rising prices by overheating consumer demand with measures like the $1,400 direct payments that went out to most American taxpayers. A similar situation could play out in California, depending on how residents spend their government cash.