Almost all the available evidence suggests that the U.S. economy is achieving what many economists had thought impossible — a soft landing in which inflation returns to acceptable levels without a recession.
It might be a few months before we’re willing to declare victory in the war on inflation, but we won’t need a run of improving data — if the next few months look like the past few, we’ll basically be there.
Some commentators have argued that when you say “inflation,” ordinary people think about the level of prices, not the rate of change. That would be very bad news, if true.
So here’s an alternative hypothesis: Voters assess inflation by comparing current prices with what they remember paying in the past, where the relevant past may be several years ago.
Now, I don’t know whether three years is the right number. But let’s run with it for a minute. Here’s the three-year rate of inflation going back to the 1980s:
Or to be less formalistic, arguably right now Americans’ notion of what things “should” cost largely reflects prices before the big 2021-22 run-up, so they don’t perceive any improvement in inflation — yet.
Paul Krugman NYT 15 September 2023