Why Economists and Citizens Have Different Inflation Realities

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The Fed and economists are encouraged because CPI is down to 3.3 percent from a high of nearly nine percent in 2022. Despite the Fed’s “significant progress” in lowering inflation, most citizens are outraged and confused by economists’ relatively rosy inflation observations. Most citizens believe inflation is still rampant.

The Fed and economists are correct in that inflation is now tame. At the same time, citizens dissatisfied with high prices have solid grounds on which to base their disapproval.

Let's better understand how such contradictory beliefs can both be factual. In the process, we can help Jerome Powell understand why economic sentiment is poor despite a near-record low unemployment rate.

You know, I don’t think anyone knows, has a definitive answer why people are not as happy about the economy as they might be. — Jerome Powell, 6/12/2024

Visualizing divergent inflation opinions

The graph below of the BLS CPI New Vehicles price index, a CPI component, demonstrates why economists and citizens have such grossly contrasting opinions of inflation.

CPI new vehicles