Why inflation is the economic problem of the decade
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Aïda Amer/Axios
It increasingly looks as if the inflation problem that emerged five years ago wasn't a one-off event, but the defining economic challenge of the decade — and Americans don't like it one bit.
The big picture: Price pressures were already reaccelerating in the last few months, and that was before the U.S.–Israeli attack on Iran disrupted global energy supplies.
- Since the initial outburst in 2021, economists have taken solace that price spikes could be chalked up to one-time factors: pandemic supply chain snarls, excessive stimulus, the Ukraine war, tariffs and now Iran.
- But when those seemingly one-off events pile up on top of each other, it no longer looks like a spurt of bad luck, but rather a resetting of prices across the economy.
- Recent data provides overwhelming evidence of both how persistent 2020s-style inflation has proven to be and just how much people hate it.
Driving the news: The 21.2% surge in gasoline prices in March was the biggest single-month percentage increase in records that date back to the 1960s.
- That drove the overall Consumer Price Index to its highest one-month surge since the peak of the Biden-era inflation in 2022. The year-over-year reading reached 3.3%, its highest in nearly two years.
- Higher gasoline prices are a first-order effect. The downstream effects on airfares, agricultural products and shipped goods haven't shown up in the data yet.
- Even before the March price surge, a separate inflation measure favored by the Federal Reserve showed a 4.1% annual rate of inflation over the three months that ended in February.
Zoom in: The build-up in inflation has been accompanied by a collapse in Americans' attitudes toward the economy.
- The University of Michigan's preliminary consumer sentiment reading for April fell to its lowest level in data that dates back decades, below even the worst of the Biden-era inflation or the depths of the financial crisis.
- That's despite the reality that many conventional big-picture measures of well-being are pretty solid, including GDP growth.
- The "misery index" — the sum of the unemployment rate and inflation — was 7.6% in March, far below its levels in 2022 or the early 2010s.
Stunning stat: The terrible sentiment number makes more sense if seen as the consequence of a half-decade of price pressures, rather than just the latest headlines from the Persian Gulf.
- Since January 2021, consumer prices have climbed a cumulative 26%.
State of play: Even as price pressures build, job prospects have started looking worse.
- The rate at which companies have hired new workers fell in February to match the lowest levels of the pandemic, and the last time it was lower was in 2010.
- A relatively benign unemployment rate has meant things are OK for those who have jobs, but low hiring rates are bad news for recent college grads or those who lose their jobs.
- Wages are no longer rising as they did earlier in the inflationary surge. Average hourly earnings were up 3.5% for the year ended in March, compared with 5.9% in 2022.
- And this is all happening at a time when the disruption to labor demand from AI is in its early phases.
The bottom line: Americans are deeply angry at the constellation of economic forces buffeting them, starting with higher prices and diminished job prospects.
- Both are poised to get worse before they get better.
