What About Inflation?

Penny candy. Nickel cigars. Dime stores and 25 cent movie tickets. Debates about prices and inflation in the United States often seem frozen in time, with cultural anchors in “how things used to be” and anxiety over how they might turn out.

That has never been more evident than over the last three years when inflation surged to levels not seen since the early 1980s and the Federal Reserve raised interest rates aggressively to rein it in. It was the first time anyone born later than around 1965 had ever experienced such extreme price increases as an adult.

Not surprisingly, inflation is a key issue in this year’s presidential campaign between Vice President Kamala Harris, the Democratic nominee, and former President Donald Trump, the Republican candidate. And because Democrats have held the White House through the inflation surge, they have been on the defensive about it.

Consider food prices:

Economists consider inflation a “tax” on everyone, but inflation doesn’t affect every state or neighborhood or family the same. Poorer families spend larger shares of income on food and shelter and can be particularly stressed by even temporary price increases for everyday essentials like food or gas. While the fast rise in prices may have passed, wage gains have not been distributed evenly, so some households have fared worse than others in the effort to keep up.

The Keys to the Castle

Throughout the inflation shock, one area that has been unambiguously painful and persistent is housing.

Incomes have risen at a weaker pace than home prices, putting a big dent in affordability. Buying a home was once the foundation of the America Dream, but it has become more difficult particularly for younger buyers. Rents have also increased.

Government estimates of “price parities” across the U.S. states show regional imbalance. The housing shock, for example, was particularly acute in some of the battleground states that could prove decisive in the November election – Arizona, Georgia and Nevada in particular - a reason the candidates have focused on housing costs.

Paychecks and Prosperity

Gas prices are another sensitive point for car-loving Americans. Some economists see surveys of consumer sentiment as little more than a referendum about pump prices. Gas is often a reference point in political debates.

It wasn’t just gas or food that saw big price jumps during the pandemic. Those prices are volatile by nature, subject to short-term disruptions from disease or bad weather.

Prices for a wide variety of other goods and services also rose, particularly “durable” goods like autos where tangled supply chains limited availability for a while. In addition to higher prices, production and delivery disruptions meant long waits for new vehicles .

Half-Full or Half Empty?

Big ticket items like new cars and houses will remain fodder for consumer anxiety simply because of the bite they take out of budgets. But when food prices go up, an increase in the smallest of pantry items can engender the largest of outrage. When a basket of goods reaches a new high at the checkout line, inflation forces shoppers to make a choice between what is a staple and what is a luxury.

Americans have had a long love affair with product innovation, especially when it is sold as a way to economize. Nearly a century ago, inspired by the success of the new powdered dessert food Jello, Edwin Perkins launched “Kool-Ade” at a price of 10 cents for a one-ounce package, enough to make about eight glasses of the beverage. During the Great Depression the company actually cut that price in half.

As Fed policymakers and elected officials know all too well, people not only hate inflation, they REALLY hate it. Survey after survey shows that, and Americans show little interest in hearing nuanced arguments about relative prices or comparative wages gains or trends over time.

In one survey last summer, economists found Democrats and Republicans split over the causes of inflation. But they all agreed that rising prices were a complete bummer, and, moreover, they expected that a fix should be available at little or no cost.

Someone, as Nobel economics laureate Robert Shiller wrote back in the 1990s, will take the blame for it in the court of public opinion - or at the polls. That may be why the issue has hung around this election year even as inflation has fallen: The memory of how things used to be dies hard.