Jerome Powell, the Chair of the Federal Reserve, recently recognized a distinct economic truth affecting every household across the country. Although inflation rates have descended from their 2022 summit, the cost of living persistently ascends. Attending an event held by the New York Times, Powell was questioned about public dissatisfaction with the economy when official data indicates substantial progress following historical patterns.
There is a critical difference between inflation, the pace at which daily item prices shift, and the cost of living. "People are disheartened because the price level is rising," Powell noted. Reduced inflation is of no consolation to individuals paying 10-20% more for necessities.
The inflation rate has certainly stabilized from its historic peak, 9.1% in 2022, but prices for most items persistently climb at a reduced speed. This situation pleases central bankers but is less favourable to general citizens.
The Consumer Price Index, assessing the prices of virtually everything individuals purchase to sustain their lifestyles, has surged 21.7% since the beginning of the pandemic. Certain items such as eggs and car insurance witnessed an even higher rate of increase, 68% and 51% respectively.
Central economist at Apollo, Torsten Slok adds, "While the Fed’s preferred gauge of inflation, year-over-year inflation, may have returned to approximately 2%, households are encumbered by significantly higher living costs compared to four years ago."
The politics of the post-pandemic national economy has the inflation surge impacting household budgets long after it has receded and influencing voters, who have expressed their discontent at the polls. Even as inflation retreats, prices are expected to remain high. The Fed's objective of maintaining a steady, albeit slow, rise in prices is designed to prevent economic downturns akin to the Great Depression.