A reader asks:
I get all the stuff Ben has been saying about inflation — wages have kept pace, economic growth has been higher than the 2010s, wages have risen the most for lower income people, etc. I get all that. My husband and I own a house and own stocks so we’ve benefitted in recent years. Having said all of that, I STILL CAN’T GET OVER HOW HIGH PRICES ARE!!!
The grocery store, home/auto insurance, restaurants, babysitters for the kids…everything is more expensive.
So how do I get over the sticker shock? Will it just fade eventually as we get used to higher prices?
The psychological component of inflation is obviously a real phenomenon.
One of the reasons for this is because inflation is personal.
Much like any given year in the stock market is rarely average, no household experiences the average inflation rate as reported by the government. Not only is inflation basically impossible to calculate precisely, but everyone’s circumstances are different.
If you own a home, locked in a 3% mortgage, don’t carry a lot of debt and own financial assets, you should be fine, relatively speaking.
If you’re a renter, looking to buy a home, need to buy a new car or need to borrow money, this environment has been a killer.
This is why so many people don’t believe the inflation numbers.
The average inflation rate includes a wide range of results across different households. Many people have been harmed by inflation through no fault of their own while others have made it out more or less unscathed through sheer luck.
The same is true when it comes to wages. Arin Dube calculated the real wage change by income quintiles from the end of 2019 through the end of 2023:
It’s true that lower
