BPEA | Spring 2024

Why do we dislike inflation?

Man looking at receipts in a grocery store
Shutterstock / Denys Kurbatov
Editor's note:

The paper summarized here is part of the spring 2024 edition of the Brookings Papers on Economic Activity, the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. Research findings are presented in a clear and accessible style to maximize their impact on economic understanding and policymaking. The editors are Brookings Nonresident Senior Fellows Janice Eberly and Jón Steinsson.

See the spring 2024 BPEA event page to watch paper presentations and read summaries of all the papers from this edition. Submit a proposal to present at a future BPEA conference here.

Most Americans strongly dislike inflation and do not believe wage increases come close to offsetting price increases, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 28.

“One view of economists is that after enough time has passed, wages will adjust to prices and ultimately things will be equivalent. But people perceive this to happen very slowly. They very much think that wages grow much more slowly than prices,” the author, Stefanie Stantcheva of Harvard University, said in an interview with The Brookings Institution.

According to her paper—”Why Do We Dislike Inflation?”—80% of respondents to recent surveys she conducted believe prices systematically increase faster than wages. Moreover, when they do receive a raise, people tend to attribute it to job performance or career progression rather than an adjustment for inflation, she writes.

However, inflation, as measured by the Consumer Price Index was 3.4% in 2023 while average hourly wages rose 4.1%. Inflation averaged around 2% from 2016 to 2020 but tripled after the COVID-19 pandemic (to 7% in 2021 and 6.5% in 2022). Following last year’s decline, many economists forecast continued improvement this year.

Stantcheva conducted two surveys of U.S. residents between December 2023 and January 2024. In the first, she collected 1,500 responses to multiple-choice and other closed-end questions. In the second, she asked open-ended questions and used textual analysis to evaluate the responses. Overall, she writes, her findings remain broadly consistent with a seminal 1997 paper by Robert J. Shiller of Yale University.

The median participant in Stantcheva’s survey said inflation in 2023 was 5%, a bit higher than actual inflation, and said they anticipated no improvement this year. Republican, female, and Black respondents perceive higher past inflation and have higher inflation expectations than respondents generally.

Inflation generated strong emotions among respondents, from anger to fear about the future, and a sense of inequity. More lower-income people (with incomes less than $40,000) than higher-income people (with incomes greater than $125,000) reported making adjustments to inflation, including reducing the quantity and quality of goods they purchased and delaying the purchase of both essential and non-essential goods. However, few respondents at all income levels report increasing the purchase of goods in anticipation of higher prices later. In addition, about two-thirds of respondents, including higher-income respondents, believe that the wages of higher-income people rise more quickly than theirs.

“There is therefore a clear sense of inequity,” the author writes.

Respondents of all political leanings ranked inflation as the most important economic and social issue. Financial stability was a close second, but inflation ranked clearly higher than economic growth, healthcare, low unemployment, national defense, and education.

Respondents differed sharply by political affiliation on who or what they blamed for inflation. Republicans blamed President Biden, followed by fiscal and monetary policies. Democrats, meanwhile, were nearly equally as likely to blame President Biden as corporate greed while few blamed fiscal and monetary policies.

Download the conference draft


Stantcheva, Stefanie. 2024. “Why do we dislike inflation?” BPEA Conference Draft, Spring.