Return of the Inflation Truthers

Has U.S. inflation come down? Yes. We have two main measures of inflation: the Consumer Price Index, which pretty much everyone knows about, and the Personal Consumption Expenditures index, which the Federal Reserve prefers as a guide to monetary policy; explaining the differences between these measures would probably be telling you more than you want to know. Anyway, the P.C.E. is currently looking more benign than the C.P.I., but both show that the rate of price increases over the past year was much slower than it was when inflation was at its peak in 2022:

It’s true that there was an uptick in reported inflation in the first few months of 2024, but the most recent numbers have convinced many observers, not to mention financial markets, that this was statistical noise. Inflation swaps, which allow Wall Street in effect to make bets on future inflation, are implicitly projecting just 2.1 percent inflation over the next year. And it’s really hard to deny that inflation is way down from its peak.

Yet many Americans don’t believe that inflation has fallen, and there are a number of commentators with large audiences insisting that there has been no improvement.

So where is this disinflation denial coming from?

Some of us have seen this movie before. In the aftermath of the 2008 financial crisis, the Fed engaged in “quantitative easing” — loosely speaking, printing a lot of money in an attempt to boost a weak economy — and there were many people insisting that this would lead to runaway inflation. When huge inflation failed to materialize — when theoretical models saying that money-printing wouldn’t be inflationary in an economy with very low interest rates passed the reality test with flying colors — some people refused to accept what was (or actually wasn’t) happening.

Instead, they became “inflation truthers,” insisting that the benign numbers were fake.

Now the inflation truthers are back. This time, however, they come in several variants. And I thought it would be helpful to look at each variant and explain how we know it’s wrong.

The first and most innocent version of disinflation denial — one common among the general public, and not especially connected to partisanship — involves confounding the level of prices with inflation, the rate of change in prices.

Consider the price of food at home, that is, groceries. In this chart the red line shows the overall level of grocery prices since the eve of the pandemic, with February 2020 set equal to 100, while the blue line shows the annual percentage change in grocery prices over the same period: