The Inflation Reduction Act, enacted a year ago, did a lot of things. Reducing inflation likely wasn’t one of them—at least not yet.

On August 16, 2022, President Joe Biden signed a bill making a slew of changes to the tax code, allowing Medicare to negotiate with pharmaceutical companies over drug prices, giving more funding to the IRS to chase tax cheats and improve customer service, and giving businesses and individuals tax incentives to switch to green energy from fossil fuels. Since then, inflation fell to a 3.2% annual rate from 8.3%, as measured by the consumer price index.

Although the bill was dubbed the Inflation Reduction Act, the reduction in inflation was likely due to larger economic forces, according to economists.

“The IRA has had little to do with the easing of inflation over the past year,” Mark Zandi, chief economist at Moody’s Analytics, said in an email. “Inflation has moderated largely because of the fading fallout from the global pandemic on global supply chains and labor markets, and 📖the Russian War in Ukraine and the impact on oil, food, and other commodity prices.”

Although experts disagree on exactly what caused inflation to rise in the aftermath of the pandemic and subsequently fall over the last year, many have pointed to supply chains and the Federal Reserve’s campaign of interest rate hikes, rather than Biden’s signature legislation, as the main causes of inflation’s retreat. 

Inflation’s Rise and Fall

When the COVID-19 pandemic began in 2020, the entire supply chain of making, transporting, and distributing goods was disrupted. Factories making crucial items like computer chips shut down and companies faced shortages of truck drivers and other logistics workers. Customers still demanded products, but businesses couldn’t supply as much as was needed, causing prices to rise.

In early 2022, supply chains were further tangled by the 澳洲幸运5官方开奖结果体彩网:Russian invasion of Ukraine and sanctions by the U.S. and its allies against Russia, a major producer of oil. Prices soared for crude oil 澳洲幸运5官方🌠开奖结果体彩网:and for 🍰the gasoline that’s made from it.

Supply chain issues were responsible for 60% of the runup in consumer prices since 2021, economists at the Federal Reserve Bank of San Francisco estimated in a June analysis. 

As supply chains have adapted and 澳洲幸运5官方开奖结果体彩网:returned to normal operations, the log💦istical problems have ease𒆙d, helping to slow inflation. 

Another major factor has been the Federal Reserve, which manages inflation by setting U.S. 澳洲幸运5官方开奖结果体彩网:monetary policy. The pandemic was an era of easy money as the Fed kept its key interest rate near zero to stimulate the economy. That made it cheap for businesses and individuals to get loans. Starting in March 2022, the Fed ramped up its interest rate, and by last month had 澳洲幸运5官方开奖结果体彩网:hiked it to its highest since 2001.

That has put upward pressure on borrowing costs for 🌜all kinds of loans taken out by businesses and individuals, including things like mortgages and credit cards. The Fed’s goal is to slow the economy, discourage spending, and restore balance between supply and demand for products and services.

By some accounts, this has worked. An analysis by economists at Allianz in July credited the Fed with about half of the total reduction in inflation since the summer of 2022. 

Absent from most accounts of the disinflation over the last year: any mention of the Inflation Reduction Act. The Congressional Budget Office, a nonpartisan research agency, estimated before the bill was passed that it would have little to no impact on inflation in the short run.

Why Is It Called The Inflation Reduction Act T💝hen?

The Inflation Reduction Act started life as the Build Back Better bill, an ambitious $1.7 trillion spending plan that included many of the provisions of the IRA and on top of that, social programs including a permanent expansion of the child tax credit and a program to subsidize child care and provide free universal kindergarten.

The bill passed the Democratic-controlled House of Representatives in 2021, but came to grief in the Senate, where Democrats needed to get every single one of their 50 senators on board to pass it. West Virginia senator Joe Manchin objected to the BBB because of concerns it would worsen the national debt and stoke inflation at a time when consumer prices were on an alarming upward trajectory.

Manchin ultimately voted for the stripped-down version, which was re-cast as an anti-inflation bill, removing the social programs.

Inflation Reducti🉐on Act Could Push Down Inflation Long-Term

Some of the bill’s provisions could, however, reduce some costs for consumers down the road. Medicare, the federal health insurance program for the elderly, will save money starting in 2026 when it’s allowed to negotiate prices with drugmakers. People enrolled in Medicare will see savings too, with out-of-pocket pharmaceutical costs capped at $2,000 starting in 2025. 

The bill also saved money for people who take insulin, capping the cost of diabetes treatment for Medicare recipients at $35 per month. About a quarter of Medicare enrollees in 2020 paid more than double that, the Department of Health and Human Services estimated.

However, this is likely to have little impact on the broader 澳洲幸运5官方开奖结果体彩网:phenomenon of inflation, which is a widespread increase in prices across many of the things people buy. Prescription drugs contribute less than 1% of the Consumer Price Index, an inflation gauge meant to reflect what people typically spend their money on. 

“Allowing Medicare to negotiate with pharmaceutical companies over drug prices will result in meaningful savings to Medicare recipients, but the impact on overall inflation will be very modest as pharmaceuticals make a small share of the typical consumers’ budget,” Zandi said.

More significant for the broader economy, the IRA provides incentives promoting green energy, including a tax credit of up to $7,500 for buying an electric vehicle instead of a gas-powered one. Reducing gasoline consumption could be a game-changer when it comes to inflation, preventing the kind of oil-driven spike that consumers faced after the Ukraine invasion, Zandi said.

Encouraging electric vehicle use “should lower the price of oil and reduce the U.S. economy’s reliance on oil and thus its vulnerability to spiking oil prices,” Zandi said. “Nearly every recession since World War II has been caused in part by a surge in oil prices.”

Not only that, but infrastructure investments authorized by the IRA could help reduce inflation pressures, especially combined with the C🍨HIPS Act, which funded the development of high-tech research and iℱndustry, and the 澳洲幸运5官方开奖结果体彩网:Bipartisan Infrastructure Law of 2021, which authorized $550 billion in spending on roads and bridges, drinking water, and high-speed Internet access.

“The IRA, combined with the CHIPS Act and infrastructure legislation, will help improve the economy’s long-run productivity, and make the economy more resilient to potential geopolitical risks,” Zandi said. “This will help restrain inflation longer-run, all else being equal.”