What Happened to Inflation?

Surging inflation during President Biden’s first two years took a huge toll on his popularity, and the memory of that inflationary episode is probably the main reason that, at least until recently, polls showed Donald Trump with a large advantage on the economy.

But most recent polls I’ve seen show that advantage substantially reduced; there are even two surveys, one conducted by the Financial Times and the regular Michigan survey of consumer sentiment, that show Kamala Harris as somewhat more trusted than Trump to manage the economy looking forward.

Some of this surely reflects Biden’s withdrawal from the presidential race; despite having been part of his team, Harris may not carry some of his inflation baggage. But it’s also true that, as Biden emphasized in his convention speech last night, inflation is way down — and voters may finally be starting to notice.

The change over the past two years has been startling. Consumer price inflation, which peaked at 9 percent, is now under 3 percent. And the true inflation picture is arguably even better. U.S. inflation numbers place a large weight on a price nobody pays — the imputed rent on owner-occupied housing, which among other things lags far behind market rental rates. If we measure inflation the way other countries do, without that imputation, we’re all the way down to prepandemic inflation:

So we have basically made a full round trip on inflation. But what brought it down?

Before I get there, let’s talk about two kinds of people who refuse to acknowledge this good news.

First, there are inflation truthers — people who claim that the official numbers can’t be trusted and that inflation isn’t really way down. In general, people who say such things have no idea how the Bureau of Labor Statistics goes about collecting price data and how hard it would be to fake the numbers. Beyond that, however, there are several independent sources of evidence on inflation, all of which basically corroborate the picture of a more or less complete round trip. For example, here’s the percentage of respondents to the National Federation of Independent Business survey of small businesses who say either that prices have increased over the past three months or that they plan to raise prices over the next three months: