The following, including the feature image, is an article by Paul Krugman. He was one of my favorites from the New York Times. Fortunately, he still writes, but he is now on Substack. If you like good writing about the economy, there are few better, if any, than him.
Click on image or source below for the entire article.
In 2019 the U.S. cost of living, as measured by the Consumer Price Index, was about twice as high as it had been in 1990. This may sound bad, but most Americans didn’t seem very upset. For one thing, wages were also up, and for most workers wage gains had outpaced price increases.
Also, the price increase was gradual; the average annual rate of change in prices — the inflation rate — was fairly low, a bit over 2 percent per year. That was low enough that people didn’t need to think much about rising prices when, say, planning family budgets. Indeed, monetary policymakers in much of the world now see inflation of around 2 percent, which is positive but low enough that people don’t spend much mental energy worrying about it, as perfectly OK, indeed better than zero inflation, because a bit of inflation, they believe, helps lubricate the economy.
Unfortunately, inflation has been on people’s minds for the past four or so years. Inflation shot up in 2021-22, which came as a rude shock after decades of low inflation. Even though inflation subsided over the next two years, the reaction to that shock still played a key role in the 2024 election of Donald Trump, who promised to bring prices back down again.
That promise, however, was never credible. Instead, Trump’s policies seem to be setting us up for another inflation surge, and fears of such a surge appear to be a major reason for plunging consumer sentiment. As the chart at the top of this post shows, consumers’ expectations of long-term inflation, as measured by the University of Michigan, have shot up to a level we haven’t seen in 30 years.