Could part of our ability to better handle price increases be due to the fact that we’re getting accustomed to them?
Something intriguing is unfolding regarding the next chapter in the story of inflation.
To put things into perspective, before the COVID-19 pandemic, annual inflation, measured by the Consumer Price Index (CPI), hovered around 2%. However, when the global economy came to a standstill and trade slowed dramatically, inflation dropped to 0.1% in May 2020.
As the economy gradually restarted and global supply chains became tangled, inflation surged significantly. In just 15 months, it peaked at 9.1% in June 2022 before dropping back to 3% a year later.
Despite the Federal Reserve’s efforts to combat inflation by raising interest rates to two-decade highs, progress in reducing inflation has slowed to a crawl over the past 18 months. Between June 2023 and June 2024, the annual rate fluctuated between 3% and 3.5%, staying within the range of 2.4% to 3% in the last six months.
In this context, the November CPI data didn’t inspire much excitement: prices ticked up slightly, pushing the annual rate to 2.7% from 2.6% in October.
While this may sound discouraging, not all the news was bad. For much of the year, rising prices were largely driven by housing costs, which accounted for nearly 40% of the overall price increase in November.
Although the annual increase in housing costs—4.7%—is still high compared to the 3.3% average in the five years before the pandemic, it has significantly declined from the 8.2% four-decade peak reached in 2022.
Something seems different now: while we all continue to complain about high prices, the overall negativity toward the economy and inflation appears to be fading.
A recent survey by the Federal Reserve Bank of New York revealed that consumers expect inflation to remain at current levels in the coming years. Additionally, they expressed greater optimism about their personal financial situation, with fewer people concerned about not being able to meet their debt obligations.
There could be several reasons for this shift. Perhaps workers feel less financial strain because average annual wages have been growing faster than inflation for much of the year. Or maybe the 58% of Americans who own stocks are feeling a boost after another year of double-digit market returns.
However, it’s worth asking: what if we’re simply getting used to living with higher prices?
We might think of this adjustment as “economic acclimatization.” Similar to the process climbers undergo to adapt to reduced oxygen at high altitudes, perhaps we’re learning to coexist with this new inflationary environment.
This doesn’t mean we should completely accept it. While prices have risen 22.7% over the past five years compared to an 8.9% increase between 2014 and 2019, many of us are still experiencing a certain degree of “price shock.”
So, if you feel the need to complain about the cost of groceries, car insurance, childcare, or any other expense, go right ahead. Just keep in mind that over time, you might find yourself feeling a little less bothered by these rising costs.
By: Nestor Castillo, ForAllTechNews Director