By Jeanna Smialek
While grocery inflation has been decreasing significantly, Tamira Flamer, 27, claims she hasn’t perceived this change. What stands out to her is that items like paper plates and meat are still pricier than they were several years ago.
“I feel like times have been tough,” remarked Flamer, a mother of two working as a driver for Amazon, as she stood outside a Dollar General in Norristown, Pennsylvania, on Sunday.
Flamer, an undecided voter who identifies economic matters as her top priority, highlights a hurdle for Vice President Kamala Harris as the presidential race nears its conclusion.
Though voters express a strong focus on the economy when heading to the polls, surveys indicate they are relatively pessimistic about its recent history. This sentiment could pose a challenge for Harris while potentially aiding her competitor, former President Donald Trump.
This persistent negativity presents a conundrum. The job market has been progressing, albeit at a slower pace, overall economic growth has been robust, and inflation has largely returned to typical levels. New data due for release Thursday is anticipated to reveal a modest 2.1% increase in prices over the past year.
While consumer confidence has begun to rise as inflation slows, it remains significantly lower than during the last time the economy appeared as strong as it does now. This is reflected in both the University of Michigan’s confidence index and a distinct measure from The Conference Board, an organization specializing in business and economic research.
Here’s a look at some possible explanations.
Consumers might be more concerned with price levels than with changes in those prices.
A straightforward reason many individuals retain ambivalence about the economy is due to “sticker shock.”
Even though prices are now rising at a much slower rate, the costs of essential items, like groceries and housing, remain significantly elevated compared to a few years ago. Many households still feel the impact when settling their bills.
Indeed, surveys indicate consumers are aware that inflation is decelerating. The University of Michigan’s inflation expectations gauge and another from the Federal Reserve Bank of New York both reveal that consumer forecasts for future inflation have been gradually decreasing.
However, they express frustration that prices are still elevated compared to pre-pandemic levels; they acknowledge that while prices may not be escalating as rapidly, they are still high.
“It’s not as if they’ve lost touch with reality,” noted Joanne Hsu, director of consumer surveys at the University of Michigan, highlighting that consumers frequently mentioned the issue of elevated price levels during interviews. “High prices continue to burden their finances, and that is incredibly frustrating.”
While wages have risen faster than prices for many, this is not universally true. Furthermore, people often perceive raises as hard-earned, whereas price hikes feel imposed upon them, perhaps even unjustly.
Housing affordability also presents a significant issue.
The grocery store isn’t the sole location experiencing noticeable price increases. Housing expenses have surged substantially in recent years, making it increasingly challenging for first-time homebuyers to afford homes since 2020.
This situation is partly a result of Federal Reserve policy. Central bankers raised interest rates sharply in 2022 and 2023 to curb demand and regain control over inflation. These heightened borrowing costs contribute to higher mortgage rates — dramatically increasing the cost of purchasing a home using loans.
Though the Fed reduced interest rates in September and is predicted to lower them at least once more this year, analysts do not anticipate that rates will fall to the record-low levels seen in 2020 and throughout the early 2010s.
The rationale for this is encouraging: the U.S. economy is performing well. Even if consumers report dissatisfaction in surveys, they have demonstrated a readiness to continue spending, and U.S. growth is substantially more robust than the situations in countries like Germany or China.
Given this, the Fed may not need to implement historically low rates to maintain economic activity as it did previously.
“We’re not returning to 3% mortgage rates — even 4% is unrealistic,” stated Greg McBride, chief financial analyst at Bankrate, in an email. “The trajectory of mortgage rates will rely on economic growth and inflation, but the new standard over the next couple of years will be mortgage rates in the fives and sixes.”
Although neither interest rates nor home prices are included in inflation measurements — rents are — housing constitutes the largest expense for most households and an essential pathway to accumulating wealth and advancing in America. This makes it integral to the overall economic mindset of the nation.
A distinct partisan divide is apparent.
Much of the negative sentiment can be traced back to basic partisanship.
Republicans generally exhibit much more optimism when a Republican occupies the presidency. Similarly, Democrats tend to feel somewhat more content when a Democrat is in office. However, they have not exhibited the same stark contrast.
Under President Joe Biden’s administration, Democrat confidence in the University of Michigan index has averaged about 15% higher compared to when Trump was in office. In contrast, Republican confidence has experienced a dramatic decline of 56%.
The ultimate outcome could influence the election.
Polls indicate that a significant number of Americans are placing the economy at the forefront as they consider their voting decisions. A national New York Times/Siena College survey of likely voters conducted in late October revealed that 27% of participants ranked the economy as the most crucial issue influencing their vote in this election — establishing it as the top concern in America.
Additionally, 4% of voters specifically prioritized inflation and cost of living concerns, surpassing those who emphasized foreign policy, taxes, or climate change.
Both candidates are concentrating on pricing as they enter the race’s final phase. Harris’ campaign titled its economic outline “A Plan to Lower Costs and Create an Opportunity Economy.” Trump has been asserting plans to reduce costs by bringing gas prices down to less than $2 per gallon. (Experts from the industry harbor serious skepticism about the feasibility of policies achieving such low gas prices.)
