Americans view inflation and high prices as their number one issue going into the 2024 presidential election, according to an analysis of voter polls. But experts like the University of Connecticut’s Steven Lanza say the economy is not that bad.
“In real terms, the standard of living — what people can buy over time — is the same or better, because the quality of the goods and services that we buy [are] vastly improved over time,” Lanza said.
Still, consumers point to high prices for necessities, like food and housing, as reasons why they feel worse off now than before the COVID-19 pandemic. But a July inflation report indicates things are leveling off.
“Over the last year, average wages have risen 3.9%, or about three and a half times as fast as grocery prices,” according to NPR. “The typical worker now has to work about the same number of hours to buy a week's worth of groceries as in 2019, before the COVID-19 pandemic.”
So why do consumers report feeling like their dollar can’t stretch as far?
“In the short run, it's really hard for us to process that,” Lanza said.
A longer term analysis by the U.S. Treasury Department reports that since the start of the pandemic, the purchasing power of U.S. households has risen. The December 2023 data shows that regular, periodic expenses like health insurance, internet service and prescription drugs have either declined or have seen less of a rise than have median earnings.
Who’s to blame for inflation depends on who you ask
Republican elected officials have blamed President Joe Biden’s $1.9 trillion dollar American Rescue Plan for flooding the economy with inflation-causing cash.
But Lanza said the perception that politicians are responsible isn’t reality.
“The injection of money into the economy? That wasn't something that actually either President Trump or President Biden did,” Lanza said.
“The money supply is controlled by the Federal Reserve,” he said. “The Federal Reserve is independent, and it happened to occur on President Trump's watch that there was a massive infusion of liquidity into the economy in an effort to prevent a recession sparked by the pandemic from turning into a depression.”
Instead of blaming the mass infusion of money into the economy for inflation, Democrats have frequently blamed corporate greed.
Supporters of the corporate price gouging theory point to the record corporate profits earned in 2023 as further proof that corporations are taking advantage of consumers to pad their bottom lines.
“If demand goes up that gives firms an opportunity to raise their prices, and those higher prices are reflected in a higher markup,” Lanza said. “So that would sort of be consistent with the story about firms price gouging.”
But corporations counter that their prices are up because their costs are up.
“If costs go up, firms will also pass those costs on,” Lanza said.
‘Blame COVID-19’
So what’s the truth? Why has U.S. inflation eclipsed 3% for the first time since 2007 — and done so for three straight years?
Lanza said the blame lies squarely at the feet of the COVID-19 pandemic. Or, more specifically, its aftermath. When many businesses reopened, he said people were ready to spend.
“Demand went up across all industries, and people went back to stores and restaurants that had the effect of raising prices simultaneously,” Lanza said.
Though the rate of inflation was reported to be slowing in July, things like grocery prices won’t necessarily drop right away.
“The economy supply disruptions that had begun during the pandemic and continue into the recovery,” Lanza said. “The combination was a very rapid increase in the price level.”
