If you go by the PCE instead of the CPI, the disparity is less dramatic; the proportion of people who judge inflation the most urgent issue has risen more than twice as fast (nine points) as the inflation rate (3.924 points) and the core inflation rate (3.387 points). But voters are still worrying about inflation disproportionately to its actual increase.
Am I telling you to stop worrying about inflation? Of course not. Inflation is a real problem because it’s outrunning wages. Compensation costs (that is, wages plus benefits) rose 5 percent over the past year, while inflation increased 8.2 percent according to the consumer price index, and 6.2 percent according to the PCE. That stinks. Powell, unfortunately, remains fixated on the labor market, which, he said, “continues to be out of balance,” by which he means it remains too healthy. But not even Powell seems especially worried that we’re entering a 1970s-style wage-price spiral. You can worry that inflation’s eating into your paycheck, or you can worry that inflation will get worse, but it isn’t logical to worry about both at the same time, because the more inflation eats into your paycheck now, the less likely inflation will persist later.
When ordinary people worry about inflation, they do not, like Powell, worry that the labor market is too robust; they worry that it’s not robust enough to keep up with rising prices. And over the slightly longer term, as Paul Krugman pointed out Monday, real wages are rising a very little bit. Since February 2020 (that is, right before Covid hit), wages for nonsupervisory workers (that’s 80 percent of the workforce) rose 1 percent faster than the consumer price index. Krugman acknowledged that you can get a less cheering result when you compare compensation costs to PCE, but he also noted that you can get a more cheering result, depending on which indicators you choose.