Inflation and perception

Where political matters are concerned, I have grown accustomed to reading about problems and situations that are entirely out of line with my personal experience. I can usually chalk those disparities up to regional differences or political calculations. Those don’t bother me, but I become concerned when financial news doesn’t reflect my reality.

The good news about our economy, we are told, is that the Consumer Price Index (CPI) peaked at 9.1% in June of ‘22 and has fallen in near-steady fashion since. Well-informed sources also say that inflation is expected to bottom at 2.5% in 2024. Good news indeed.

In the meantime, I have received some alarming bills that have thrust me into full militant-consumer mode. I’m seeing prices for mundane but necessary expenses at 15-40% over pre-COVID prices, and they don’t appear to be easing. Why do I read about moderate, declining inflation while I face double-digit price increases?

As it happens, I am not the only person to ask that question. Academia has taken interest, and research into the disparities between measured and perceived inflation tells us that the individual products and services we consume will inevitably differ from the “basket of goods” used to calculate the CPI. Some prices will be higher; some will be lower, and in theory, those should all even out to something that approximates the CPI. They explain that our prejudiced minds, however, take sharp notice of increased prices and tend to forget the ones that decrease.

That all makes perfect sense to me, but now that I have been alerted to my warped perceptions, I’m looking for the savings I am reportedly overlooking. Turning to the ever-informative worldwide web, I located a story on Investopedia titled “7 Products that are Getting Cheaper,” and I don’t mind admitting that my expectations were high. Finally, after four-dollar gasoline, six-dollar ground beef, seven-thousand-dollar cars with 200,000 miles on the odometer, I was looking forward to blessed relief.

The goods they claimed were getting cheaper included things like gym memberships, fast food, hotels, televisions, and solar panels. I had difficulty taking that product mix seriously, but undaunted, I surfed on in search of an answer. A story on CNBC (better at economics than politics) cited gasoline, airline fares, car rental, major appliances, television, and eggs as having become cheaper since June of 2022. I recall that eggs were remarkably expensive during the height of the lockdown, and yes, fuel prices have decreased, but they are edging up again.

Another story from the people at AARP (who seem to like my mailbox) also promised a list of seven things getting cheaper. Their list included eggs again, butter, lettuce, fresh fruit, bacon, used cars and gasoline. That list clearly describes the recovery since the lockdown and associated supply chain issues. I’m not complaining, but my frame of reference precedes the virus.

Having wasted enough time on lightweights, I went straight to the source: The U.S. Bureau of Labor Statistics (BLS). In its August 2023 statement, BLS confirmed that gas prices are on the way back up, as were most non-dairy food items.

The categories showing recent decreases included lodging and recreation, which supported some of those less serious stories. The statement also recognized a modest decrease in the cost of used cars, but didn’t put a dent in last year’s increases.

With all of the numbers carefully considered, I’m still left with the sense that we are witnessing a historic surge in inflation that will leave a permanent shift in perceptions. We will remember, of course, that inflation figures reflect rates of ongoing inflation that only accumulate and never decrease, but having lived through a surge in the late 70s and early 80s, I think I have seen this movie before.

When I think about inflationary surges, it seems to me that the force economists call “consumer friction” acts a bit like a tectonic plate. The gradual, positive inflation that trudges along at two to three percent is met with friction created by consumers like you and me. We compare prices, identify value and spend accordingly. We act as a force that restrains prices, while that two to three percent of inflationary pressure builds slowly and consistently. The friction holds it in place until it is overwhelmed by the tension and it breaks. Then we have an earthquake.

Historians can argue about what happened in the 70s that made the earth move. Some say it was the pent-up energy from Nixon’s wage and price freeze. Others can argue at length about the removal of our currency from the gold standard. There is plenty of room for debate with regard to that surge in prices, but I don’t think there’s much doubt about what we are seeing in our own time.


Three years ago, news sources consistently reported that prices were going up. Consumers took notice and were prepared for sticker shock. Then they saw empty shelves, and the laws of supply and demand kicked in. Who knew there would be a secondary market for toilet paper?

Marketers were wise to seize the moment, hiking prices when they knew consumers would forgive them. We were, after all, in a pandemic. The whole world was locked down. People were getting sick and we were told that if we weren’t scared, we should be. Masked up and slathered in Purell (generic, of course) we went shopping with a primal urge to stockpile supplies at any price. The friction was breaking.

Three years later, I think we have indeed taken the giant leap, and we’re watching the formation of new equilibriums. In August, several news outlets ran a story about a New York Fed survey showing that the “reservation wage,” or the average minimum salary that workers would accept at a new job, had risen to $80,000. We’re getting a bit less than that in Nebraska, but we just had a minimum wage increase, and we’re due for another in three months. Where minimum wages go up, costs of goods go up, and sooner or later, everything and everyone else follows.

We have all taken the big leap whether we know it or not, and only when we get acclimated to our next, newer normal will we then be able to apply our consumer friction again. We can only look forward to it.