Recent government inflation data has shown that prices have increased by 3.5% over the past year, down from a high of 9% in June 2022. Despite this, inflation remains a significant concern for Americans, with Federal Reserve Chair Jerome Powell indicating that an interest rate cut is unlikely in the near future. A Pew Research Center poll reveals that strengthening the economy is the top concern for voters heading into this year’s election, highlighting the importance of addressing inflation.
Economists have noted the disconnect between the positive economic indicators, such as employment growth and wage increases, and the high costs faced by many Americans for essential goods and services. Research by economist Stefanie Stantcheva builds on Nobel laureate economist Robert Shiller’s work to explore why inflation is so disliked by individuals. The decline in purchasing power due to high inflation is a key factor, despite evidence that wages have been rising faster than inflation in some cases.
Low-income families, who spend a larger portion of their income on essentials like groceries, are particularly hard-hit by inflation. While wages have increased for many low-wage workers, the rising cost of goods erodes their purchasing power. Partisanship and financial position also influence how individuals perceive the causes of inflation, with higher-income individuals more likely to attribute it to lax monetary policy and lower-income individuals less likely to do so.
Many believe that inflation benefits businesses by increasing profits, but this may not necessarily translate into higher wages for workers. Research suggests that labor incomes have not seen a proportionate increase compared to business profits, indicating a potential imbalance in the distribution of economic growth. Understanding people’s attitudes towards inflation is crucial for developing effective responses to address its impacts, especially as the economy continues to feel unfair for many individuals.
As the country heads into a major election year, it is essential for policymakers to take inflation seriously and consider how it affects various segments of the population. Addressing issues such as high costs for housing and caregiving, in addition to combating greed, will be key in mitigating the effects of inflation on lower-income individuals, who are already struggling to make ends meet. The Federal Reserve must carefully weigh the impact of high interest rates on vulnerable groups, such as Black families and women, to prevent further economic hardship. By acknowledging and addressing the root causes of inflation, policymakers can work towards creating a more equitable and sustainable economy for all Americans.
