Inflation Has Cooled, but Americans Are Still Seething Over Prices

Many people—though not all—saw wage increases that kept pace with the pandemic’s rapid price hikes, but the psychological toll remains

By Jon Kamp, Joe Pinsker and Aaron Zitner of The WSJ. 

I have done several posts on how people have been dealing with the inflation of the last few years as well as how they have been affected. Those are listed after some excerpts from the article.

"Americans are grappling with dramatic price hikes that, for most, are unprecedented. In the latest surge, inflation peaked in mid-2022, with prices up more than 9% from a year earlier. In the years prior to the pandemic, inflation was unusually cool, and the last time it was a real problem was the 1970s and early ’80s."

"Inflation has slowed dramatically in the past two years, and it was down to 2.4% in September"

"At the same time, employment and consumer spending have stayed strong, and wages have on average grown faster than prices."

"people continue to face painfully high and sometimes rising prices for big-ticket items, including housing, cars, child care and insurance, which contributes to their sense of unease."

"a Fed report Wednesday noted some signs of Americans shifting toward cheaper purchases."

"Others are simply irritated by having to pay much more for groceries, a deli sandwich or their morning coffee—even if their own pay hikes have made such items even more affordable than they were before the pandemic. Some in this camp feel the higher prices have devalued raises they worked hard to get."

"The latest Wall Street Journal national survey, released Wednesday, shows about three-quarters of respondents believe costs for everyday goods and services outpaced household income in the past year."

"38% of voters said the cost of living was still rising and creating major financial strains for their families."

"if there were five stages of inflation grief, Americans have yet to reach acceptance."

"The University of Michigan’s Surveys of Consumers from late September and early October show Americans have significantly lowered their expectations for continued inflation. At the same time, 44% of those surveyed said high prices were worsening their personal finances. This is near the 47% who said the same thing just after the 2022 inflation peak."

"Survey data show consumer sentiment has improved from its mid-2022 trough, but it remains well under where it was before the pandemic took off."

"Ulrike Malmendier, an economics and finance professor at the University of California, Berkeley’s Haas School of Business, has studied the way living through inflation and other economic turbulence affects people long afterward. This is even true for members of the Federal Reserve, whose views on inflation often appear linked to the times they lived through.  

Most models say that once problems like high inflation subside, people are expected to resume their prior behavior, Malmendier said. But her research shows people actually carry scars that can long influence how they spend and save."

"A key question is how long those scars last, and there are limited examples to draw on for answers. During the 1970s and early ’80s bout, as Volcker described, people became somewhat conditioned to high inflation because it went on for so many years. The phase also ended with the U.S. plunging into a recession that led to high unemployment.

This time, high inflation was intense but relatively brief, and came under control much faster than many people expected, Malmendier said. But the calm that preceded it meant the sudden surge upended peoples’ expectations.

“There was this long period of stability before, people were totally anchored on that,” she said. “Their world was shaken.”"

"what many voters seem to want is prices to go back to where they were. That is deflation, the opposite of inflation, and economists say it generally only happens when the economy is deeply depressed."

"Peoples’ sour views of inflation are fed in part by a belief that their wages aren’t keeping pace, according to Stefanie Stantcheva, an economics professor at Harvard University. She surveyed people early this year to explore the public’s inflation views.

She also found that even when people receive wage increases during times of inflation, they tend to peg increases to their job performance or career advancement, and not a cost-of-living increase. “This contributes to the dislike of inflation and the feeling that it erodes your living standards,” Stantcheva said."

"Inflation also raises feelings of inequity, Stantcheva has found, due to a perception that high-income people see faster wage increases to offset the high prices. Since the start of the pandemic, wages for lower-income earners have actually tended to grow faster, and are outpacing inflation by more than wages for higher-income earners, economic analyses of Labor Department employment data have found.

Stantcheva emphasized these findings don’t mean people’s feelings are off base, and she said inflation is measured in a broad way that can miss many subtleties. Different people buy different things, exposing them to different price changes. Her survey work shows news reports of inflation are especially likely to set off despair, stress or fear among low-income people.

Her surveys also found people estimated inflation in the prior 12 months to be higher than it actually was, while also finding people predicted higher inflation than the U.S. has seen this year." 

This graph shows the annual percentage change in the Consumer Price Index from 1960-2023. It shows how much the monthly average of the CPI increased year over year. It is from Federal Reserve Bank of St. Louis. 

Related posts:

Child Care, Rent, Insurance: Where Inflation Hits Hardest Now (2024)

Why do workers dislike inflation? (2024)

Inflation Usually Hits Harder for Poor Families. For a Couple of Years, It Didn’t. New research on how inflation varies between the poor, middle class and rich paints a different picture of poverty and inequality (2024)

The Haves and Have-Nots at the Center of America’s Inflation Fight: There’s a growing gap between Americans who are battered by high inflation and interest rates and those who are actually benefiting (2024)

An Increase in Uninsured Drivers Is Pushing Up Costs for Everyone Else (2024) 

Inflation has caused consumers to choose what they need to cut back on (insurance)

Costco and Sam’s Club Aisles Are Full of Gen Z Shoppers (2024)

Consumers are buying in bulk to save money by getting a lower per unit price

Inflation is mentally taxing (2024)

Inflation is mentally taxing. Dealing with a straitened budget exacts a psychological toll as well as a financial one

Store Brands Are Filling Up More of Your Shopping Cart (2024) 

People are on the look out for cheaper alternatives due to inflation

Consumers Fed Up With Food Costs Are Ditching Big Brands (2024) 

After years of price increases, food companies say more consumers pull back; fast-food chains and snack makers plan new deals and flavors

Are Americans Worrying Too Much About Inflation? Two opposing views (2024)

The Era of One-Stop Grocery Shopping Is Over (2024)

One thing that I always talked about with inflation was that one of its costs was all the things we had to do to avoid it. Consumers are making 8% more trips to different retailers as inflation continues to upend household budgets. They are going to more stores to find lower prices. But it costs time to do that and probably more money on gas.

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) 

By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. The requirements to calculate and recalculate commercial transactions in the billions and trillions made it practically impossible to do business in paper Marks.