The “‘Inflation Reduction Act’ increased inflation and drove prices sky high!”

Americans have been sour on the economy for the past few years, particularly since inflation peaked at a 40-year-high in summer 2022. Republican candidates have sought to emphasize inflation as a reason to oust Democrats who were in office during this time.

Tim Sheehy — a Republican challenging Sen. Jon Tester, D-Mont., in one of the nation’s most closely watched Senate races — sought to blame his opponent for inflation in an Aug. 21 X post. 

“Two-Faced @JonTester’s ‘Inflation Reduction Act’ increased inflation and drove prices sky high!” the post said.

But the year-over-year inflation rate has declined by more than two-thirds since the bill passed. Although economists say the law is not a significant reason for the decline, the inflation rate’s decline after its passage shows it didn’t cause prices to skyrocket, either.

Tester supported the Inflation Reduction Act

President Joe Biden on Aug.16, 2022, signed the Inflation Reduction Act after approval by Democratic-led party-line votes in the House and Senate. Its main provisions addressed reducing carbon emissions, letting Medicare negotiate over drug prices and boosting funding for the Internal Revenue Service.

Tester voted for the bill, which passed, 51-50, after Vice President Kamala Harris broke the tie.

What happened to inflation after the law?

In August 2022, when the law was signed, year-over-year inflation was 8.3%, not far below its peak in June around 9%.

In June 2023, year-over-year inflation fell to 3%, and it has remained below 3.7% every month since. The most recent month, August, had a rate of 2.5%, which is similar to its level before the coronavirus pandemic and nearing the Federal Reserve’s 2% goal.

We have previously written that, despite its name, the Inflation Reduction Act had little effect on cutting inflation. Provisions such as enabling Medicare to negotiate some drug prices or subsidizing clean energy may one day help keep prices down, but elements of the law were phased in over several years and could not have had a significant impact during 2022 and 2023, when most of the two-thirds decline in the inflation rate occurred.

Economists told us that rate hikes by the Federal Reserve, falling oil prices and an economic slowdown in China played more important roles in easing inflation.

Still, the inflation rate’s decline after the law’s enactment contradicts Sheey’s statement that prices went “sky high” after its passage.

Did any other Tester-backed laws contribute to inflation?

When contacted for this article, the Sheehy campaign cited an additional law: the American Rescue Plan Act. This law, which Biden signed as a pandemic relief bill shortly after he took office, included $1,400 direct payments to about 85% of Americans, $360 billion for state and local governments and $242 billion in expanded unemployment benefits.

As lawmakers worked on the measure, some economists, including Larry Summers, who directed the National Economic Council under former President Barack Obama, warned the bill would lead to inflation. Fiscal conservatives joined in the warning.

Economists now widely agree that the critics had a point. They say the law put too much money in Americans’ pockets when the pandemic had hampered global supply chains, meaning too much cash was chasing too few goods and services. Because demand outstripped supply, prices surged.

However, most economists also agree that the American Rescue Plan didn’t alone cause inflation’s rise. The supply chain shortages, economists say, ignited the inflation increase, and Russia’s 2022 invasion of Ukraine — which prompted an oil price spike and other trade interruptions — worsened it.

The Sheehy campaign also said prices never stopped increasing after the Inflation Reduction Act’s August 2022 enactment. Although prices may have risen more slowly, the campaign said, that came on top of prices that were already inflated.

Still, while prices have risen by 6.4% since August 2022, wages have risen faster — by 8.5%.

Our ruling

A Sheehy post said the Inflation Reduction Act that Tester supported “increased inflation and drove prices sky high!”

Tester voted for the Inflation Reduction Act in August 2022. But since the law’s enactment, year-over-year inflation has fallen by more than two-thirds. 

It doesn’t mean that the Inflation Reduction Act caused inflation to ease. But data shows the law didn’t send prices “sky high.” Prices rose, but at a slower rate, and at a rate slower than wage gains.

Economists agree that a different law Tester supported, the American Rescue Plan of 2021, bears a portion of the blame for 40-year-high inflation, though not a majority.

We rate the statement False.