People Keep Making These Six Mistakes About Inflation

It is entirely possible that former President Donald Trump will get back into the White House in large part because Americans misunderstand inflation.

I’m not arguing that the inflation surge early in President Biden’s term wasn’t a real problem. It was. I’m not even arguing that all the damage done by that surge has been undone. It hasn’t.

What I am saying is that people are making several related mistakes that cause them to overestimate the size of price increases, the harm they have done and the culpability for them of Biden and his veep. Those mistakes, combined with Trump’s undeserved reputation as a mastermind of business, are causing them to believe that Trump would be better than the Democrats at managing the economy.

The first mistake is to focus on the rise in prices without taking into account the rise in wages — or, for retirees, the increase in Social Security payments, which are tied to the cost of living.

At the beginning of the inflation spike, prices really did race ahead of wages. That opened up a household deficit that had to be filled with savings or borrowing, Amy Crews Cutts, an economic consultant to the financial services company Primerica, told me. That’s a fair point.

But lately wages have grown faster than prices, as the White House Council of Economic Advisers keeps saying. Inflation-adjusted wages are still down from January 2021, but by only 1.4 percent, compared with a decline of 4.2 percent at the worst point.