VIEWPOINT | Americans can tell the difference between rosy economic data and reality

Column by Veronique de Rugy

The economy is growing, unemployment is low, wages are up, and inflation is down. However, the American people remain grumpy about the state of the economy. This puzzle was just investigated by four economists. They found that people often know that something is wrong even if statistics don’t reflect the problem. In this case, people are perceiving that inflation is still, in fact, high.

For months now, Americans have been told that inflation’s downward trend, from almost 9 percent annually to around 3 percent, should make them feel good about the economy. But it isn’t working. A recent Gallup poll found that 63 percent say the state of the economy is getting worse and 45 percent think it’s already “poor.” One reason, many have speculated, is that while the rate at which prices are rising might have slowed considerably, prices remain very high. Food and rent in particular are still expensive. These prices are felt everyday by Americans when they pay for their housing and go to the supermarket.

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But that’s not all. A new study from the National Bureau of Economic Research by economists Marijn Bolhuis, Judd Cramer, Karl Schulz and Larry Summers finds that a change in the method used to estimate inflation today, compared to the method used in the 1980s, might well cause an underestimation of the true level of inflation.

The paper – “The Cost of Money Is Part of the Cost of Living” –  highlights the overlooked impact of the highest borrowing costs consumers have faced in decades. From mortgages to car loans to credit-card debt, those costs are up.

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