Is Inflation Still a Threat? The Surprising Truth Behind the Numbers

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Just two years ago, inflation dominated economic discussions both in the media and at dinner tables. At its peak in June 2022, inflation soared to 9.1%, a figure that sent shockwaves through the economy and significantly dented President Biden’s approval ratings. By December 2023, inflation had dropped to 3.4% — a remarkable turnaround by any standard.

The latest inflation report shows a rate of 2.9% for the 12-month period ending July 31, 2024. This has led Federal Reserve chair Jerome Powell to say that the Fed will likely cut interest rates at the September Fed meeting.

Why, then, do so many consumers remain convinced that inflation is still a major issue? An August 20, 2024, editorial in The New York Times from Paul Krugman, “What Happened to Inflation,” provides some insights.

Krugman reminds us that high inflation was largely a byproduct of COVID-19 disruptions. The pandemic caused significant shifts in both how we spent our money and how businesses operated. Supply chain snarls, labor market mismatches, and a surge in demand for goods over services all contributed to the inflationary pressures. But as businesses adapted and the economy adjusted, these pressures eased, leading to the significant drop in inflation we see today.

Additionally, Krugman argues that the sharp decline in inflation is a significant vindication of the Biden administration’s economic policy. Any discussion of the reduction—without the economic pain many predicted—should acknowledge that it was due in part to deliberate policy decisions that steered us back to economic stability.

Yet, despite these positive developments, many people continue to feel uneasy about the economy.