When our inflation infeelings don’t match the CPI

Oliver Douliery/Getty

For most Americans, we just lived through the highest period of inflation in our lives. And we are reminded of this every time we go grocery shopping. All over TikTok, tons of people have posted videos of how little they got for … $20. $40. $100. Most upsetting to us: an $8 box of Cinnamon Toast Crunch.

Food prices are almost 30% higher than they were five years ago. It’s bad. And those new, higher prices aren’t going away.

At the same time, prices are no longer inflating at a wild pace. For the last two years, the rate of inflation has slowed way down. And yet, our fears or feelings that things will spiral out of control again? Those have not slowed down.

This mismatch has been giving us all the …. feelings. Inflation feelings. Infeelings.

On our latest show: we sort through our infeeltions. We talk to the economists who have studied us. We learn why our personal inflation calculators don’t always match the professional ones.

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President Trump’s tense, televised clash with Federal Reserve Chair Jerome Powell has raised concerns about the central bank’s independence ahead of this week’s meeting to consider interest-rate adjustments. While Trump isn’t the first president to pressure the Fed to cut interest rates, experts say his brash and bullying tactics are unprecedented.

After weeks of publicly criticizing Powell, Trump made a rare visit to the Fed’s Washington, D.C., headquarters on Thursday. During a tour of a $2.5 billion renovation project, Trump stood beside Powell in front of the cameras, waving a document that he said detailed major cost overruns. Powell shook his head in disagreement and firmly pushed back against the claim.

Trump himself nominated Powell to the top Fed post in 2017, proclaiming, “He’s strong, he’s committed, he’s smart,” but this month, the president seemed to forget all that, accusing Powell of being “too late” in lowering interest rates and expressing surprise that President Joe Biden had “put him in and extended him.” (Biden did reappoint Powell in 2021.) Trump has even floated the idea of firing the Fed chair, whose term expires next May — a move that would be legally contentious. Powell himself has said he won’t step down if Trump asks him to.

“Presidents have complained about bad policy, but they haven’t been as aggressive in their attacks on the institution as the Trump administration has been,” says Bill English, a professor at the Yale School of Management.

Trump “thinks he can behave in a way that doesn’t respect the checks and balances that are built into our institutions. And one of those checks and balances is the Federal Reserve System,” says Bob Hetzel, an author and former senior economist at the Federal Reserve Bank of Richmond.

The Federal Reserve — the nation’s central bank — helps maintain economic stability by managing monetary policy, setting interest rates, promoting stable prices and maximizing employment. In times of crisis, the Fed also serves as a lender of last resort, supplying emergency liquidity to banks and the broader financial system — as it did during the 2008 financial crisis and the COVID-19 pandemic.

The seven members of the Federal Reserve Board of Governors are nominated by the president and confirmed by the Senate to serve single, staggered 14-year terms. The chair is also nominated by the president and must be confirmed by the Senate to serve a renewable four-year term. While the chair can be chosen from outside the board, the individual must first be nominated and confirmed as a board member before assuming the role.

The board’s Federal Open Market Committee (FOMC) meets eight times a year, including this week, to set the federal funds rate, which banks charge each other for overnight borrowing. The rate is a key driver of economic activity and indirectly influences interest rates on credit cards, mortgages and other loans.

How important is Fed independence?

Over the years since its creation by Congress in 1913, the Federal Reserve’s independence has been considered essential for maintaining credibility with both financial markets and the public, according to Joseph Gagnon, a former senior Fed economist.

“That’s why they have staggered terms for the [board’s] governors … and the idea that the president cannot remove a person except for cause,” says Gagnon, now a senior fellow at the Peterson Institute for International Economics.

Michael Klein, a professor of economics at the Fletcher School at Tufts University, notes that while the decisions on setting interest rates are made collectively by the Fed Board governors, if Powell were to bend to the president’s will, “[we] would have an unprecedented situation if you have a chair seen as beholden to the president, and governors who feel differently. That kind of uncertainty can really hurt the economy.”

The Fed sometimes must make unpopular but necessary decisions, such as raising interest rates to curb inflation — as it did following the pandemic, when supply chain disruptions and pent-up consumer demand contributed to a surge in prices.

Today, the showdown between Trump and Powell is over precisely such an unpopular course of action: The Fed, which concludes its latest meeting on Wednesday, has been reluctant to lower the federal funds rate from the range of 4.25% to 4.5% because it hasn’t quite reached its stated goal of 2% inflation. More importantly, Powell has said he’s taking a wait-and-see approach to Trump’s tariff war, which could lead to higher prices.

Powell said of the Fed last year: “We don’t guess, we don’t speculate and we don’t assume.”

“We don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be,” he also said.

Have past presidents influenced the Fed?

Trump isn’t the first president to try to influence the central bank, Klein says. “Nixon famously put a lot of pressure on [then-Fed Chair] Arthur Burns to keep interest rates low in advance of the 1972 election.”

That pressure on Burns over a period of months, according to a handwritten diary kept during his years as chair and evidence from the infamous Nixon tapes, included a leaked threat that the White House would take over the Fed.

Ultimately, Burns lowered interest rates, a decision that economist Burton Abrams told NPR’s Planet Money that he thinks resulted from “a capitulation to Nixon.” Klein says that “one of the consequences of that was … the high inflation that we had in the 1970s.”

It’s hard to know for sure to what extent Burns was swayed by Nixon or just thought he was making sound policy that coincidentally aligned with the White House, Yale’s English says. Most people, he says, think Burns caved. As a result, “Nixon and Burns [are often seen] as an example of how things can go wrong.”

Paul Volcker, who became Fed chair in 1979, is widely credited with stabilizing the economy after the high inflation of the 1970s — largely through a sharp increase in the federal funds rate to restrict the money supply.

What would happen if the Fed bent to Trump’s pressure?

In countries such as Turkey, Venezuela and Argentina, “[we] have instances where the central banks are kind of beholden to the government. … These lead to really bad economic outcomes,” Klein says.

Gagnon, the former Fed economist, agrees that “history is full of episodes” of governments that tried to ease monetary policy in exchange for a few months or a few years of lower unemployment and strong growth. But “the trade-off is always inflation,” he says.

But even if Trump were to sack Powell or persuade him to call for lower interest rates, the president’s ability to influence the Fed’s decisions on rates is limited, says Hetzel, the former senior economist at the Federal Reserve Bank of Richmond.

If a newly appointed chair were to take control and try to push the funds rate down when it’s not appropriate, that person is “going to get a lot of dissent” from Fed policymakers, Hetzel says. “The prestige of the chairman comes from speaking for the FOMC. And as the chair gets a lot of dissents, this suggests that the Fed is divided, and that’s very discouraging and very disturbing to financial markets.”

Then there’s the legacy — both Powell’s and that of whoever becomes the next Fed chair. “Powell desperately wants to be the next Volcker, not the next Burns,” Gagnon says.

The same goes for whoever might replace Powell. “A new chair is going to have to deal with the fact that if he’s going to go to the Central Bank of Valhalla, he can’t leave his term with inflation. And he’s going to be interested in his own legacy,” Hetzel says.

The August recess is a time for Congress to put in face time at home, meet with constituents and maybe lay the foundation for a reelection bid.

This August, though, is quieter for some Republican members, as they navigate how to message about the One Big Beautiful Bill, President Trump’s signature legislation signed into law in July.

Ahead of the recess, the National Republican Congressional Committee, an organization dedicated to increasing the amount of GOP seats in the House, sent Republican lawmakers a memo to “Make August Count,” with crafted messaging and language to use when interacting with constituents, encouraging them to go on offense to sell their legislative victories.

“The playbook is simple: focus on Republicans’ efforts to improve voters’ everyday lives and show the contrast with out of touch Democrats,” the memo read.

In-person and telephone town halls used to be a common way for members of Congress to connect with constituents following a busy session. Earlier this year, though, the NRCC urged Republicans to avoid town halls altogether — and those lawmakers seem to be listening.

Out of 219 House Republicans, roughly 37 hosted some kind of townhall so far during the August recess, according to an NPR tally. Of those, approximately 16 hosted at least one in-person event. Some have held multiple events.

In a statement to NPR, NRCC spokesperson Mike Marinella said Republicans are using the recess to “prove we deliver for America,” trying to draw a distinction between the GOP and Democrats, stating the blue team is “knifing each other in primaries, bleeding support, and cozying up to criminals.”

“The contrast couldn’t be clearer: Republicans fight for you – Democrats are tearing the country apart,” he stated.

Still, amid a flurry of events held by Democratic members of Congress eager to message against the legislation and Republicans in power, the fraction of Republicans holding town halls gives a sense of what is on voters’ minds — and how the GOP has to address those concerns.

Take the tense scene inside a packed auditorium in Lincoln, Nebraska, recently, where Republican Rep. Mike Flood faced hundreds of constituents during an August 4 town hall.

Many were vocal about his support for President Trump and his vote in favor of the legislation. They pressed Flood on his policy positions on different issues, especially one related to the recent legislation: health care.

“How can you justify taking health care away from 78,000 Nebraskans?,” asked one attendee, referring to the Medicaid cuts outlined in the expansive spending package passed along party lines.

Flood’s responses to the hasty questions often followed a formula. He would state something positive about the policy while propping up a conservative talking point.

“You have an additional $700 million coming into the state of Nebraska for Nebraska hospitals,” he said. “If you are able to work and you’re 28yearsold and you choose not to work, you don’t get free health care in America.”

Those are similar to the talking points the NRCC encouraged Republicans to focus on: issues that polled well among voters, including provisions in the bill that remove taxes on tips and overtime and work requirements for those on Medicaid. Lawmakers who decided to host town halls heeded the NRCC’s advice.

Rep. Dan Newhouse, R-Wash., held a telephone townhall in July. Like Flood, he was asked about Medicaid cuts by a voter named Daniel Manella.

“The bill also cuts out $700 billion from Medicaid and millions of people are going to lose their insurance coverage. So what leads you to believe that this is good?,” Manella asked his representative.

Newhouse refuted the notion that people were going to lose access to health care. Instead, he said Americans looking for subsidized insurance have a choice to make.

“We’re going to encourage work in this country, which used to be a good thing. Work ethic is something that we value,” Newhouse responded. “If somebody is going to be benefiting from the American taxpayer and they’re able to work, then they should.”

NPR reviewed nearly 10 recent town halls. The same series of questions seemed to be at the top of voters’ minds at each event. They were concerned about health care, immigration and tax cuts. Multiple constituents reiterated the same question, especially if they didn’t think it was answered adequately. But the lawmakers rarely veered away from the NRCC’s talking points.

Karen Fulbright-Anderson asked Rep. Bryan Steil, R-Wis., about the tax cuts outlined in the bill, at his town hall event in a high school auditorium in Elkhorn, Wisconsin. She wanted to know when he was going to “take as good of care of your constituents who are not super wealthy as you do of the ones who are wealthy.”

“It appears that people who are earning $200,000 and less are going to pay more in taxes. People who are making $1 million and more are going to be getting big tax cuts,” she told him.

Steil said he disagreed with the way she framed the issue. The tax provisions of the bill, he said, was to keep the 2017 tax cuts passed during Trump’s first administration intact. Then, he highlighted parts of the bill that have resonated with voters.

“What we did is we added in tax benefits for middle income workers $75,000 and below as it relates to overtime and as it relates to taxes on tips,” Steil told Fulbright-Anderson.

Rep. Keith Self, R-Texas, also stressed the importance of the tax cuts during his small in-person townhall at a brewery in McKinney, Texas, about 30 miles outside of Dallas.

“No tax on tips, no tax on overtime, reduced taxes on Social Security, on and on and on. So, I will tell you, what I fought hard for, though, is tax cuts. And that was the crown jewel of this One Big, Beautiful Bill.”

Jim Curry, a political science professor who studies Congress at Notre Dame University, said it’s tough for Republicans to play offense on the megabill.

“I don’t think the Republicans messaging on the bill is particularly strong or effective, in part because it’s not very clear cut,” Curry said.

He added that it would be a hard sell because the law covers a wide array of different issues and Republicans probably knew it was going to be an uphill battle. A July NPR/PBS News/Marist poll found 52% of registered voters disapprove of Republicans’ performance in Congress.

Although, Curry said it was never going to be easy, especially for a new majority.

“What almost invariably happens is a party sweeps into power. They’re given control of everything, and then they overreach. And they tend to overreach early by doing stuff that goes a bit beyond what voters maybe had hoped for or wished for or expected,” he said.

In Houston, some worry their problems would be neglected after redistricting

HOUSTON — The neighborhood called “Denver Harbor,” is mostly small homes and small businesses. It’s a largely Latino area and people are worried about immigration and deportations.

“Everybody’s nervous,” said Rene Porras, a Vietnam combat veteran and small business owner. “I have a little local taqueria, Mexican bakery, and business is down for the last three or four weeks. I mean, really down. And I talked to my other friends that have businesses and the same thing. Where did the immigrants go?”

Rita Robles is a community activist in Denver Harbor, who underscored the problem.

“When they started saying that ICE (Immigration and Customs Enforcement) was going to be in the area, we’ve spotted them in certain areas where they’re huddling together, before they go do a raid, and that has scared the hell out of the people here,” Robles said.

Mass deportations are just one part of President Trump’s agenda that the Republican majority in Congress has supported. But their majority is narrow and to help maintain it, Trump has called for Texas lawmakers to redraw the voting maps to help GOP candidates in the election next year. Trump says he wants redistricting in Texas that will create five more Republican-held seats.

Democrats in the Texas state house have left the state to try to block the chamber from having enough members to hold a vote on the maps. They’ve indicated they could return soon. Gov. Greg Abbott, a Trump ally, threatened to have them arrested or removed from office if they don’t return to the Legislature.

One reason Democrats say they could return is because Democratic leaders in California plan to ask voters for permission to counter Texas with redistricting there. And Republican-led states, including Missouri and Florida, are considering countering that. Usually states just redistrict early in the decade after the regular census count, a norm that Trump’s plan could disrupt.

This neighborhood could end up in a district that tilts Republican

The district is currently represented in Congress by Democratic Rep. Sylvia Garcia. Under proposed maps in the Legislature, the Denver Harbor neighborhood would be sliced out of the district it’s now in and moved to one that includes suburbs and exurbs.

An analysis by the Texas Legislative Council, an agency that provides research for state lawmakers, shows that while the current district Denver Harbor is in now voted for Kamala Harris for president last year, voters who would be in the new district went for Donald Trump by a wide margin.

Porras says neighbors don’t want the redistricting. “Since Trump’s proposed this,” Porras said, “he’s so unpopular around here it’s incredible. Everything from cutting services and Medicaid, all the things he didn’t mention during the election, or said he’s not going to cut, that’s exactly what he’s doing.”

Robles worries about what the redrawn district will mean for the environmental health of the neighborhood, which sits just a few miles from the Houston Ship Channel.

“We have a very big problem with air pollution,” Robles said. “We already have a large number of people in our area that suffer from health problems, and then on top of that, you suffer from things like asthma, emphysema.”

Robles said people in Denver Harbor don’t make much money compared to the neighborhoods it would be joined with in the new district.

“They make six figures, you know, anywhere from $50,000, $60,000 and up to six figures,” Robles said of her prospective neighbors. “They don’t have these types of problems that we do.”

Why the GOP is seeking a new district

But Republicans note that, while Denver Harbor’s current district twists and turns across Houston and the surrounding county, its proposed new home is more compact. And it will still be majority Hispanic, even though Democratic leaders might not like how they vote.

“The way the new maps are drawn is really more indicative of how Harris County has changed demographically,” said Cindy Siegel, chair of the Harris County Republican Party.

Siegel argued that if Democrats are upset by the proposed new map, it’s because they realize that they’ve taken Hispanic voters for granted, and now they pay a price for it.

“They know that there has been a shift in the last election that the Hispanic community, more Hispanic voters, in fact, supported President Trump, voted for him,” Siegel said.

Texas House Majority Leader Tom Oliverson, a Republican who represents Cypress in northwest Harris County, told Houston Public Media that partisan gain was, in fact, the main reason for the redistricting plan.

“I think it’s well within our right to do so,” Oliverson said. “There are many, many states where redistricting for partisan performance has been a way of life for 20, 30 years, particularly in Democrat states.”

But partisan redistricting can overlap with racial gerrymandering, which is illegal. Michael O. Adams, a political science professor at Texas Southern University, said that the apparent Hispanic majority of the proposed district is deceptive and does not reflect its likely voting majority.

“I think what we’re seeing here, and what we’re witnessing in this redistricting proposal and the midterm cycle, is what I would call a master class in demographic manipulation,” Adams said.

Andrew Schneider is the senior reporter for politics and government at Houston Public Media.

ANNOUNCER: This is Planet Money from NPR.

[COIN SPINNING]

KENNY MALONE: What drove a young man named Rocky to the Cinnamon Toast Crunch that day? His inner child, perhaps? Memories of Saturday mornings and cartoons in pajamas? Maybe, but there he was in the cereal aisle holding a box of Cinnamon Toast Crunch and, uh, losing his mind.

[AUDIO PLAYBACK]

ROCKY WALKER: OK, y’all, I might be a unc for real, because since when is cereal $8 a box? What the hell?

MALONE: Rocky turned to TikTok to sort of work through his feelings about this apparent cereal inflation.

WALKER: Like, am I tripping?

MALONE: He’s addressing a friend here.

WALKER: G, am I tripping? Has cereal always been this high?

SPEAKER 1: I guess. I don’t know.

WALKER: OK, he acting like it’s normal. Maybe I’m just broke as [BLEEP]. [LAUGHS]

[END PLAYBACK]

MALONE: Inflation has been and continues to be one of the single biggest economic concerns for Americans, according to a regular survey from Gallup. And that anxiety is very easy to understand. People are worried about the impact of tariffs. There are rumblings of possible inflation upticks to come. And– and maybe most obviously, prices are indeed way up compared to before the pandemic. Like, groceries are 30% more expensive than they were just, like, five or so years ago. And, look, those prices are not going to come down. That is simply not how inflation works. We always have some inflation, prices go up. The question is, at what rate do those prices go up? And two years ago, the rate of inflation did come way down. It’s been decently close to the target inflation rate of 2% for a couple years now. So inflation has cooled a lot. But you know what has not cooled off? TikToks like Rocky’s, which I have come to love and call the “I’m sorry, groceries cost what now?” social media post. The basic structure of one of these goes–

[AUDIO PLAYBACK]

SPEAKER 2: Holy cow. I just got back from Target.

MALONE: –person goes to the grocery store–

SPEAKER 3: I went to Sam’s Club for four items.

MALONE: –often buys 20 items or less.

SPEAKER 4: Two bags of groceries–

SPEAKER 5: Three items at a small-town grocery store–

MALONE: These are notably not unusual items.

SPEAKER 2: Bananas–

SPEAKER 3: Some Chips Ahoy–

SPEAKER 5: Case of Diet Coke–

SPEAKER 6: Some peppers–

SPEAKER 7: Bag of pizza rolls–

SPEAKER 2: Just, like, basic things.

MALONE: But you know what? When they go to check out, I’m sorry, these groceries cost what now?

SPEAKER 8: $20. These are five items!

SPEAKER 9: Six items, $88.

SPEAKER 3: Four items, $101.

SPEAKER 9: What the [BLEEP]?

SPEAKER 3: The rate that we’re going right now, next week, these four items will likely be $120. I’m serious. I’m not joking.

[END PLAYBACK]

MALONE: Now, that would be 20% inflation. And I very much understand this fear because for the majority of Americans, we just lived through the highest period of inflation in our lives. And we’re reminded of this every time we go to the grocery store and we see what this period of inflation did to the price of our Diet Coke and our pizza rolls and, for our TikTok friend Rocky, his Cinnamon Toast Crunch.

[AUDIO PLAYBACK]

WALKER: Like, I’m almost positive that cereal was never almost $10 a box.

[END PLAYBACK]

MALONE: It’s true. I, too, have nearly crashed my buggy, specifically because the prices of cereal stunned me. I get this. And yet, it is my job to know the inflation data. And the official inflation statistics say that the price of groceries over the last year has increased 2.2%. Like, not ideal, but not the 20% inflation it may feel like we should expect. And I think there is something mysterious about the way we experience the mix of these dramatically higher prices and the not as dramatic inflation that we’re in the middle of right now. We’re not wrong. The data’s not wrong. But maybe we can take a lesson from TikTok Rocky, who, when confronted with the proverbial $8 box of Cinnamon Toast Crunch, had the instinct to just try and talk through those inflation feelings.

[MUSIC PLAYING]

MALONE: Hello, and welcome to Planet Money. I’m Kenny Malone.

JEFF GUO: And I’m Jeff Guo.

MALONE: Inflation, feelings. In-feel-tion.

GUO: [LAUGHS]

MALONE: Infeelings? What are we–

GUO: Yeah, sure, OK. Economists have been studying our infeelings.

MALONE: Because when there is a mismatch between inflation and our perceptions of inflation, it matters. It changes our behavior. It affects who we vote for, what we buy, when we buy it, which mortgages we take out, all sorts of choices we make.

GUO: And so today on the show, we talk to the economists who have studied us and hear what they’ve learned about why our, sort of, personal inflation calculators don’t always match the professional ones. So grab a spoon and a bowl and some dang expensive Cinnamon Toast Crunch, and see if we can all work through some in-feel-tions together.

MALONE: There is a lot of good research on the ways our brains process changing prices. But before we started calling the economist names on those research papers–

[LINE RINGING]

MALONE: –a more important phone call. Hey, is this Rocky?

WALKER: Hey. Yeah. What’s up, Kenny?

MALONE: Rocky Walker, 27 years old, security guard by day, TikTok creator by night, @RockyRare.

GUO: Rocky tells us that on the fateful day of his $8 cereal video, he did not enter the grocery store intending to talk about Cinnamon Toast Crunch.

WALKER: It’s been forever since I’ve really sat down and just had a bowl of cereal and watched some cartoons. So–

MALONE: So you really were looking for that nostalgia bump.

WALKER: Literally, just– yeah, I haven’t bought some Cinnamon Toast Crunch in a hot minute, but–

MALONE: Did you end up buying that Cinnamon Toast Crunch for $8 or–

WALKER: Hell no.

MALONE: Oh.

WALKER: I put it back.

[LAUGHTER]

WALKER: Hell nah.

GUO: Rocky is not typically TikToking about economics, but if you are documenting your life these days, prices and money and economics, they’re just all part of that.

WALKER: I mean, with everything. Like, say, for instance, not even with just groceries, I feel like with my generation or, like, Gen Z, like, we’re the “new adults,” quote unquote. But it’s just–

MALONE: What do you mean, quote unquote? Are you not– do you not feel like you’re an adult?

WALKER: I mean, you know, we’re all out here for our first time, really, just trying to swim. But–

MALONE: Yeah.

WALKER: –with these prices, it’s so– like, it’s so hard to try to, like, budget between fun, between, like, responsibilities, and just, like, necessity. And, like, I feel like, it’s not, like, a lot of weight on your shoulders because this stuff is not cheap at all.

MALONE: Yeah, because inflation is cumulative. It adds up. Overall, prices are still about 25% higher than they were five years ago. And these new higher prices aren’t going away. Now, those prices are no longer going up at a wild pace. The rate of inflation has slowed way down by comparison. But our fears, our feelings that things will spiral out of control again, for some of us– for me, personally– I’m not sure that has slowed down.

GUO: We told Rocky that his TikTok had helped inspire us to talk through our inflation feelings with the economists who have been studying this stuff, writing papers about it.

MALONE: Along the way, would it be OK if I shared some of the things I’ve learned, like, from the economists I’ve talked to and some of the papers that–

WALKER: Of course.

MALONE: –we’ve been reading? Would that be cool?

WALKER: Of course. I love getting informed, man. [LAUGHS]

GUO: OK. So we will check back in with Rocky from time to time.

MALONE: But that thing he said about his generation feeling this inflationary weight on their shoulders reminded us about some very specific research about how different generations react to price increases because living through inflation can leave a kind of economic scar that has a big impact on our infeelings.

GUO: To talk about that research, we turned to one of the authors, an economist who thinks of her own inflation anxieties as a kind of heritage.

ULRIKE MALMENDIER: I’m German, and definitely the general anxiety of the Germans about inflation at all times has been transmitted to me. And I don’t think I will ever get rid of it.

MALONE: Ulrike Malmendier is a Finance and Economics Professor at UC Berkeley and, indeed, from Germany, which had bonkers inflation in the 1920s, wheelbarrows full of German marks more valuable as bonfire kindling, that kind of stuff. So yes, she jokes that she has inherited disproportionate inflation anxiety.

GUO: But her research has specifically looked at what happens when someone actually lives through periods of high inflation.

MALMENDIER: The main emphasis of that research can be typically boiled down to saying, well, give me your birth year, and I’d get a very good idea of how optimistic or pessimistic you are about inflation.

GUO: Yeah, depending on where you live. So let’s say you lived in the United States during that huge double-digit inflation of the 1970s and ’80s, Ulrike found that this scars people. It makes them more likely to expect inflation in the future, no matter who they are.

MALMENDIER: Even the best informed people who are– I don’t know– serving on the Fed board, even these people, we’ve been able to show, tend to put a lot of weight on experiences they have had themselves.

MALONE: But what I was curious about were the more recent generations because, you know, for example, I’m 40. Our friend, Rocky, is 27. And neither of us has really seen or thought about inflation until the relatively brief spike around COVID.

MALMENDIER: Yeah. So where you are going is also really interesting because you have had a very stable inflation experience much of your life. That was your world. You would know, if you studied economics, you knew about inflation from textbooks. And–

MALONE: It was theory. It was totally theory for me.

MALMENDIER: Exactly. That was just theory.

MALONE: Yeah, which is totally true. Yeah.

MALMENDIER: And suddenly, your world gets turned upside down.

MALONE: People in these younger generations grew up taking for granted that inflation was always low and stable. And then when inflation rates spiked in the early 2020s, it was extra disorienting.

MALMENDIER: It really shocks you so much because you can’t even handle that, that data. And that’s what we are seeing in the kind of younger generation, your age, but particularly, even younger. That’s when, you know, you don’t know how to move forward, where, basically, you keep trying to process this, and you can’t fully process it. So you do these cool TikTok videos about Cinnamon Crunch Toast, which is, of course, a great cereal.

GUO: Oh, Ulrike knows. I mean, she knows about Cinnamon Toast Crunch being the greatest cereal of all time, but also, why the price of Cinnamon Toast Crunch might have a particularly outsized effect on our assessment of inflation.

MALONE: Yes. This brings us to the second major area of Ulrike’s research that we want to talk about. And it has to do with the way that we, as individuals, perceive inflation versus the way economists measure inflation.

GUO: So just to step back for a second, you may be familiar with the Consumer Price Index, CPI. This is, like, the main measure of inflation from the Bureau of Labor Statistics. And the way this is calculated is, they have this massive list of things that we pay for. They monitor the changes in those prices. And then they blend that all up into a single measurement, CPI, which tells us, things are getting this much more expensive. That is inflation. It’s meant to capture all of the price changes affecting everybody in the country in one single measurement.

MALONE: Now, what Ulrike has found is that we consumers are each doing a version of this for ourselves. But the list of items that we monitor, it is very small. It’s really just the stuff that we look at and we buy all the time.

MALMENDIER: Hence, all this emphasis on the gas pump, right, and then groceries. And we found, you know, people think a lot about bread, milk, eggs, men also beer. Beer prices matter.

MALONE: Men– beer prices. Why not?

GUO: Yeah. Each of us has our own version of frequently bought items that we really notice price changes in.

MALONE: TikTok Rocky, for example, really watching the prices of chips.

WALKER: Anywhere from the Lay’s to the Doritos.

MALONE: Also, meat.

WALKER: Mind you, I don’t even eat beef or pork anymore. But–

MALONE: But chicken, salmon, and watching, most of all, eggs. Rocky loves breakfast, loves baking.

WALKER: Eggs definitely is one of the things that I’m going to have to buy, no matter what.

MALONE: No matter what. And I do want to know your number one bake. Like, someone’s coming over house for the first time, and you want to impress them.

WALKER: That would involve eggs? I would definitely, like– everyone loves mac and cheese. Like, I would– I like to cook for my friends. So I would definitely make them some– some baked mac and cheese, like, some soul food for sure.

MALONE: So Rocky may not realize it, but Ulrike’s research would suggest that he is likely getting a big chunk of his take on inflation from the prices of chips and chicken and eggs because he is buying those things frequently.

GUO: And all of us do a version of this. And Ulrike says that can mislead us. For starters, frequently bought grocery items? They don’t actually make up that big of a chunk of our total spending when you think about all the huge things that we also spend money on, like housing and childcare.

MALONE: Also, food prices happen to be some of the most notoriously unreliable prices to watch, which Rocky has noticed with regards to his beloved eggs.

WALKER: Well, yeah, like, that’s one thing that always kind of, like, gags me a little bit because sometimes, it’ll be, like, $2, which is, like, the normal price, and sometimes, it’ll go up all the way to, like, $6 or $7 for, like, a dozen, which is crazy.

MALONE: Yeah food prices, and gas prices, too, they jump all over the place, up and down for reasons that may not be signs of overall inflation, because inflation, by definition, is a rise in prices all across the economy.

GUO: As opposed to a situation where, say, bird flu messes up the egg supply, or OPEC cuts oil production, or a natural disaster devastates a corn crop. Those may just be temporary shocks in a specific sector that may go back to normal.

MALMENDIER: And the irony of it all is that as a researcher and as a monetary policymaker, you are always pushed and asked not to look at exactly those items, [LAUGHS] energy and groceries, because they fluctuate so much.

MALONE: Huh.

MALMENDIER: But we humans, that’s basically all we look at all the time, when you think about inflation.

MALONE: There is a different inflation calculation that you may have heard of that takes out volatile things like energy and food. It is called core CPI, core inflation. And it is something policymakers will look at to get a sense of overall inflation trends without the noisiness of those volatile price swings that we’re talking about.

GUO: And there’s one final thing about volatile prices, which is that other research has shown that we really notice when prices swing up, but we don’t notice as much when they swing down.

MALMENDIER: People really seem to latch on to the up part and get totally upset about it. And then on the down part, they’re like, whatever. You know, they’re not kind of spending as much emotional capital on it. So–

MALONE: Well, Rocky is not going to make a TikTok–

MALMENDIER: Yes.

MALONE: –when Cinnamon Toast Crunch–

MALMENDIER: Yes.

MALONE: –is on sale for $5.

MALMENDIER: Oh, perfect. I have to remember that anecdote going forward.

GUO: Now, look, going to the grocery store, it’s not going to be an anxiety-free activity anytime soon. Everything we buy really is more expensive than it used to be. And while the data show that the median income has generally kept up with that inflation, it doesn’t mean that everyone is benefiting from those increasing salaries.

MALONE: But it is also true that there might be, might be some additional stress we do not have to bring to those grocery store trips, like the fact that we instinctively look at just a few grocery items to gauge all of inflation. And the fact that we latch on to the volatile ups of price swings, but not the volatile downs, it does create a situation where we may be stressing over sudden grocery price jumps a little bit more than we have to.

GUO: So what are we grocery shoppers supposed to do about these volatile prices playing tricks on our minds? Well, we asked Ulrike. And she says it sort of boils down to, could you find ways to blunt the ups and downs of those groceries, that volatility that isn’t actually inflation?

MALMENDIER: So if I could convince grocery shops to kind of average out prices, so take out some of these fluctuations. Or I could convince you not to look at the price.

GUO: Yeah, it’s like the classic advice you hear about the stock market, right? Don’t look at the ups and downs of your retirement account every single day. Just look once a year, at the end of the year, and focus on the general trend.

MALONE: You could possibly try the same thing with your groceries, I suppose. Like, just buy what’s on your list, and don’t look at how the prices are jumping up and down and up and down.

MALMENDIER: And then at the end of the year, we look back and say, OK, on average, it wasn’t so bad. So I don’t have to get all nervous about. So if I could do that, I would– I would love that.

GUO: You know, that’s an idea.

MALONE: In theory, that would make sense, yes, I guess. And we did run that idea past Rocky. What do you think about that idea? Just close your eyes, and buy the things.

WALKER: Um–

MALONE: [LAUGHS]

WALKER: [LAUGHS] I mean, I don’t know. Like, I guess I can, like, understand the– like, the– the setup. It’s just, I don’t know if that would work– you know, like, I don’t know if that would work for me because–

MALONE: Uh-huh, yes.

WALKER: You know?

MALONE: I do know. I–

WALKER: With everything going on, like, you kind of have to go into things like grocery shopping with a game plan because, like, say, for instance, if there’s some things that you know might go on sale later, you might, like, hold off on that, or make that stretch a little bit until you know you can get it at a decent price. So I don’t think that would work for me.

GUO: Yeah, it’s not going to work for Rocky, or, probably, most of us. It is very difficult to ignore the prices that we see all the time. But we can remember Ulrike’s research, that we may be putting too much emphasis on too few things or on things that change in price all the time and may not be an indication that overall inflation is actually on the rise again.

[MUSIC PLAYING]

GUO: After the break, we look at maybe the single most important thing we measure for inflation and why those measures, too, are sometimes hard to believe.

MALONE: $8 Cinnamon Toast Crunch, obviously, my favorite TikTok by Rocky Walker. A close second, though, is this. Picture this. Rocky is sitting in his apartment, which is maybe seven stories up in his Chicago apartment building.

[AUDIO PLAYBACK]

WALKER: And someone just told me to turn around and look out the balcony. And look what I see.

MALONE: The camera flips around, and we see snow on the balcony. We see a couple bikes on the balcony. But also perched there on the railing–

WALKER: Hello there. What’s up, buddy?

[CLATTERING]

MALONE: –it is the fluffiest little bird you will ever see.

WALKER: It kind of looked like a baby, like, hawk or eagle. It’s so fluffy, though. Oh my God. I would try to give it some food, but I feel like if I open the door, it’s going to fly away. But I mean, you’re free to chill there as long as you want, buddy.

[END PLAYBACK]

MALONE: I would watch that channel 24/7. That’s all I’m saying. But, but relevant to this episode is that when I talked to Rocky, he told me he was currently looking to move out of that bird balcony apartment. And he’s been very surprised at the prices he is seeing to rent apartments.

WALKER: Rent is crazy. I haven’t moved in five years. And the difference between prices when I moved five years ago and now is insane.

MALONE: Yes, the price of rent. It is arguably, arguably, more noteworthy than the price of Cinnamon Toast Crunch.

WALKER: Like, a one-bedroom, one-bathroom here in Chicago, you could very much find something within, like, the $1,000 range to now where, like, they’re very much asking for a good $1,500 or above to be in a decent neighborhood with decent appliances and something that doesn’t look ancient. And I feel like, that’s crazy.

GUO: The average price of rent is about 29% higher today than before the pandemic. And how much we pay to live where we live is one of the single biggest things that goes into the Consumer Price Index. It’s like a third of the total weight. The term you’ll hear for this is housing services.

MALONE: Yeah, and that housing services bucket in particular is an area that produces a lot of infeelings. It also produces some pretty interesting conundrums for economists when they are trying to measure inflation.

LOUISE SHEINER: Test 1, 2.

MALONE: We brought economist Louise Sheiner into the studio to talk about all of this.

SHEINER: [LAUGHS] That’s what–

MALONE: Is there any dreams of mic checks you’ve ever wanted to do?

SHEINER: No.

MALONE: Mic check 1, 2, 3. Brookings in the house.

SHEINER: Brookings in the house.

MALONE: See, that one’s good.

SHEINER: There you go. That’s good, yeah.

GUO: Louise is a senior fellow at the Brookings Institution. She’s done a lot of work around housing prices and how those prices are factored into inflation data.

MALONE: And we asked Louise to get extra nerdy with us and explain how the numbers are collected and calculated. And Louise said, A, of course, she would do that for us, and then, B, that we should start, perhaps, with how we get the cost of housing for renters like Rocky.

SHEINER: It’s pretty simple. It’s your rent, right? How much you’re spending, you’re spending rent. What happened to rent is very simple. No real issue there.

MALONE: That’s pretty easy to measure. You could call me and ask me what my rent is.

SHEINER: Exactly.

MALONE: OK.

SHEINER: All right. So that’s easy.

GUO: The data is easy to collect. More or less, you go around asking people what they pay in rent. And the people who track inflation for the Consumer Price Index, they’re contacting all kinds of renters– people who just moved into a place, people who have lived in the same place for 5 years or 20 years or 40 years.

MALONE: And this is a very reasonable way to calculate overall rent prices for inflation.

SHEINER: Because CPI is trying to measure the cost of rent for everybody.

MALONE: But the thing is, if you are like Rocky and looking for a new place, it doesn’t matter what people are paying for rent if they’ve lived in the same place for 20 or 40 years and aren’t moving. Like, those are not the kinds of rent prices that Rocky is going to find if he’s looking for a new apartment on, let’s say, Zillow.

GUO: Yeah. And generally speaking, those live market rate rental prices for places that are available right now, they can change a lot faster.

WALKER: Yeah, way faster, man. It’s really crazy.

GUO: And definitely faster than what is reflected in the CPI.

MALONE: Yeah, so there can be this disconnect between what you might see for market rates on Zillow and then the measurements the Bureau of Labor Statistics, BLS, takes. And that disconnect created a whole thing during COVID, Louise says.

SHEINER: Because rental indexes using big data, like the Zillow Rent Index, was showing much bigger increases than what BLS was showing on their rent index.

GUO: And so people would look at the official CPI numbers and be like, wait, what? Those official numbers seem too low. But the reality is, CPI is simply a slower, laggier indicator, in part because it’s not just looking at those new market level listings on Zillow.

MALONE: And just to give you a sense of this lag, after the pandemic, it took official inflation numbers, like, a year longer than Zillow numbers to show that rent increases had finally started to slow down. This is simply how it works with the CPI and rentals.

GUO: Yep. And OK, things get even trickier when we try to measure inflation for homes people own, which makes up an even bigger portion of the CPI than just rentals. The majority of people, like 2/3, live in homes they or their family own.

MALONE: And Louise says it is deceptively tricky to calculate what homeowners are paying for their version of housing services.

SHEINER: The hard thing is when people own their homes. They are not writing a check for housing services.

MALONE: OK, well, they’re writing–

SHEINER: They might be– right.

MALONE: –a mortgage check.

SHEINER: They might be writing a mortgage check unless they’ve fully paid off their mortgage.

MALONE: OK.

SHEINER: Their mortgage check will depend on how big their down payment was.

MALONE: Right.

SHEINER: Their mortgage check will depend on when did you take out your mortgage?

MALONE: And so you cannot just call people up and ask, how much is your monthly mortgage payment? Because that would drag all those other variables into the equation.

SHEINER: And so you hear the word “Owner’s Equivalent Rent.”

MALONE: Owner’s equivalent rent.

SHEINER: Equivalent rent. OER.

MALONE: OER.

SHEINER: OER.

MALONE: Do we sort of pronounce it “oer”?

SHEINER: No, we say O-E-R.

MALONE: OK.

SHEINER: [LAUGHS]

MALONE: That’s better, yeah.

GUO: So to measure inflation when it comes to homeowners, there is this clever little trick. The idea is that you look at some owner-occupied house and then calculate what would likely be the rental price for that home.

SHEINER: How much rent could you rent your house out for?

MALONE: Oh.

SHEINER: That’s what it is.

MALONE: What is the opportunity cost–

SHEINER: Exactly.

MALONE: –of me staying in this house?

SHEINER: As opposed to renting it to somebody else. So I’m renting it to myself. This is how much I’m paying.

MALONE: Well, great. That’s not complicated.

SHEINER: It’s not complicated.

MALONE: We’re done.

SHEINER: Well, how do you get that?

MALONE: Ah, yes. Well, what the statistics people do is go looking for similar houses that are available to rent, which is clever, but perhaps comes with some tradeoffs because, quite literally, this means our official inflation statistics use the experience of home renters to stand in for the experience of homeowners.

GUO: Yeah. So one issue is that generally speaking, there just aren’t as many rental versions of houses on the market. And the rental homes that are on the market, how equivalent really are they to the houses that people own, right? That is always the question.

MALONE: Yeah, and then question– or I guess, issue number 2 is that this OER is also a lagging indicator because just like rental prices, OER is made up of the same rental price information ultimately. So again, any big sudden swings, it’s going to take time for the official statistics to catch up.

GUO: But look, there is no perfect solution to measuring the experience of inflation for homeowners.

SHEINER: And in fact, there isn’t agreement across countries on how to measure housing services. Some people in the European Consumer Price Index, they don’t include unoccupied. They just take it out because it’s too complicated–

MALONE: I mean–

SHEINER: –to measure.

MALONE: That’s– that’s the, like– yeah, that’s the slacker solution.

SHEINER: Well, so here’s where–

MALONE: I don’t know. It’s too hard.

SHEINER: There are a lot of people trying to think about, well, how could you use Zillow and house prices and big data? And, like, is there a way of doing a bit better?

MALONE: But nothing yet. And the thing is, whenever we try to measure things and then process that down into a useful amount of information, there are going to be tradeoffs. If you wanted a housing inflation number that people could look at and feel reflects their personal experience, well, you might need a different number for long-term renters versus new renters versus homeowners versus people looking to buy their first home versus people looking to sell their home. Each of those groups could look at the current inflation data and feel like, wait, does that number actually capture what I’m feeling about housing inflation right now? Do you have a sense of whether we’ve chosen an approach that is more about capturing the feeling versus whatever the alternative would be?

SHEINER: I think we’ve chosen an approach that is economically sensible. Like, I was on a National Academy of Science panel, and we voted on whether or not we thought the current method was kind of right.

MALONE: Amazing.

SHEINER: But it was all economists, and we said yes. [LAUGHS]

MALONE: Oh, OK. OK.

SHEINER: So I think we recognize that it doesn’t necessarily capture people’s feelings. And people’s feelings are very important. So there is something about a CPI that is on its face wrong because everybody has a different CPI. What are you buying? What do you care about? How much is this quality improvement worth to you? We have to get a number that kind of gets it right on average. But there’s a million things happening underneath, and we have this one summary statistic.

GUO: Economists and policymakers, they need those summary statistics to understand how the economy is doing overall, how much we need to worry about inflation, you know, as a country. That is important. But as Louise said, our individual experiences are also important, our in-feel-tions. And so we knew we did need to check in one more time on the in-feel-tions that started this whole episode to begin with.

MALONE: Rocky.

WALKER: Hey, what’s up, Kenny?

MALONE: Are you at the grocery store?

WALKER: Yeah, I’m walking in right now.

MALONE: We wanted the most recent update on the very personalized TikTok Rocky Price Index.

GUO: Yeah, the TRPI. And so we asked him to go back to the grocery store and to, you know, reprice a few items for us.

MALONE: Rocky’s first stop, the chip aisle, one of his frequently bought and priced items.

WALKER: I’m looking at the Doritos. So regularly, they’re $6.30.

MALONE: Whew!

WALKER: But they have a deal for, like, two bags for $7, so pretty much $3.50 each.

MALONE: $3.50 each. OK.

WALKER: But yeah, I’m not going to lie. That’s an instant grab–

MALONE: OK.

WALKER: –for sure. That’s one that I can’t pass up.

MALONE: OK, great. But keep going, Rocky. Keep going. Because the real reason we’re here, the Cinnamon Toast Crunch, of course.

WALKER: Surprisingly, they’re on sale right now.

MALONE: Oh! Really?

WALKER: Yeah, they’re on sale right now.

MALONE: What’s the price?

WALKER: So they’re on sale for, like, $6.50, but they have, like, a deal where, like, if you buy four, you get them for $2 each.

MALONE: Wait, what?

WALKER: Yeah. That’s crazy.

MALONE: I mean, Rocky, how many boxes of Cinnamon Toast Crunch are we buying? Six? Nine? This is stockpile time, man.

WALKER: [LAUGHS]

MALONE: Rocky takes a moment, considers all of this.

WALKER: If you want my honest, honest reason why that I’m, like, skeptical about it is because four boxes of Cinnamon Toast Crunch, that’s going to be, like, just staring there at the top of the refrigerator at me.

MALONE: Uh-huh. That is– I mean, it is kind of a lot. You’re doing some preventative willpower work here.

WALKER: Yeah, if you feel me because literally having four boxes of sugar just–

MALONE: OK, all right.

WALKER: Yeah.

MALONE: Fair enough, Rocky. Fair enough.

[MUSIC PLAYING]

GUO: Before we go, a quick shout out to our Planet Money+ listeners. Your support helps keep NPR going. And as a thank you for that support, you get access to our regular bonus episodes. It might be an extended interview or behind-the-scenes content or a new episode format that we are trying out. If you’re not a Planet Money+ supporter, you can sign up at plus.npr.org.

MALONE: This episode was produced by Willa Rubin, with reporting from Emily Crawford. It was edited by Marianne McCune. It was fact-checked by Sierra Juarez and engineered by Jimmy Keeley. Alex Goldmark is our executive producer. And a very special in-thank-tions this week to our own in-Mary-Childs-tion for coining the term “in-feel-tions.” I’m Kenny Malone.

GUO: I’m Jeff Guo. This is NPR. Thanks for listening.

[MUSIC PLAYING]

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