Why does everyone feel terrible when GDP, stocks, and real wages are near record highs?
It's the price level shock. People think their raises are earned. Price increases feel like theft. So "real income is up" doesn't compute emotionally.
Economists measure inflation as a rate of change — now back to average. Consumers experience it cumulatively — a 30-year high. Gas at $5 may be low inflation today, but we remember $3. That gap drives sentiment.
The data is clear: when cumulative price increases are modest, sentiment is strong. When they pile up, sentiment craters. This isn't the whole story, but it's a big piece of it.
Markets price the present. People live in memory.
It's the price level shock. People think their raises are earned. Price increases feel like theft. So "real income is up" doesn't compute emotionally.
Economists measure inflation as a rate of change — now back to average. Consumers experience it cumulatively — a 30-year high. Gas at $5 may be low inflation today, but we remember $3. That gap drives sentiment.
The data is clear: when cumulative price increases are modest, sentiment is strong. When they pile up, sentiment craters. This isn't the whole story, but it's a big piece of it.
Markets price the present. People live in memory.
