The Impact of Inflation Misunderstanding on Political Perceptions

It is entirely plausible that former President Donald Trump may find his way back into the White House, largely due to the widespread misunderstanding of inflation among Americans. I am not suggesting that the inflation surge experienced early in President Biden’s administration was insignificant; it certainly was a serious issue. Moreover, I do not contend that all the negative consequences stemming from that surge have been fully resolved. They have not.

What I am emphasizing is that individuals are making several interconnected errors that lead them to overestimate the severity of price increases, the resulting harm, and the accountability of Biden and his administration. These misconceptions, combined with Trump’s unwarranted reputation as a savvy business strategist, contribute to the belief that he would be more effective than the Democrats in managing the economy.

The first critical error is the tendency to focus solely on the escalation of prices while neglecting to consider the corresponding rise in wages. For retirees, the increase in Social Security payments—which are linked to the cost of living—also plays a crucial role. Initially, during the inflation spike, prices indeed surged ahead of wages, creating a financial shortfall for many households that had to be compensated through savings or borrowing. As noted by Amy Crews Cutts, an economic consultant for the financial services firm Primerica, this observation holds merit.

However, it is essential to acknowledge that in recent times, wages have been increasing at a pace that outstrips price rises, as consistently highlighted by the White House Council of Economic Advisers. While inflation-adjusted wages remain lower than they were in January 2021, the decline now stands at a mere 1.4 percent, a significant improvement compared to the alarming 4.2 percent drop observed at the peak of the inflation crisis.