The recent government inflation data shows that prices have grown at a rate of 3.5% over the past year, down from a high of 9% in June 2022. Despite the significant cooling, inflation is still a dominant economic concern for Americans, with Pew Research Center polls showing that strengthening the economy is their top priority heading into the upcoming election. Federal Reserve Chair Jerome Powell has indicated that an interest rate cut may not be coming soon due to the persistent inflation rate.
Economists have noted the disconnect between the positive economic recovery, with employment rebounding quickly and wages increasing, especially for low-wage workers, and the high inflation rate affecting everyday necessities. Research by economist Stefanie Stantcheva builds on the work of Nobel laureate economist Robert Shiller to understand why people dislike inflation. The decline in purchasing power when inflation is high is a significant factor, despite evidence that wages have been rising faster than inflation.
In a high churn labor market, people tend to attribute their wage gains to individual abilities rather than recognizing them as compensation for inflation. Low-income families, who spend a larger portion of their incomes on groceries, are hit the hardest by increasing prices. While everyone dislikes inflation, perceptions of its causes vary based on partisanship and financial position. Higher-income individuals are more likely to blame loose monetary policy, while lower-income individuals may benefit from expansionary approaches.
Perceptions of the link between inflation, wages, and profits also vary among individuals. Many believe that businesses may benefit from inflation through increased profits, without passing on wage increases to workers to the same degree. Research shows that while both profits and wages are increasing, the share of economic growth going to labor incomes has been historically low. Understanding attitudes toward inflation is crucial for addressing the harms it causes, particularly for high basic costs such as housing and caregiving, which were already unsustainable before inflation began to rise.
Despite variations in responses based on income and political affiliation, it is clear that people perceive the economy as unfair and in need of proactive government intervention. Addressing greed, housing and caregiving crises, and considering the impact of high interest rates on lower-income individuals, particularly Black families and women, is essential moving forward. Federal policies and the Federal Reserve must prioritize those most affected by inflation to ensure economic stability and fairness for all.
