2. raises a point while simultaneously subduing it it by mentioning perception rather than effects. The effects are sticky since inflation is an incremental property, but people think in terms of actual prices. Can you blame them? Just because the things you needed to buy aren't increasing in price as fast anymore doesn't mean that the rapid increase in price in the past has disappeared, nor does it mean you can now afford them. The thing has gotten more expensive, and it has stayed more expensive.

@DKNguyen All of what you say is true, but inflation isn't a measure of how expensive things are; it is a measure of how fast prices are increasing. The fact that people use price levels over long lag times to gauge what inflation is right now is a problem of perception. As to why someone should care about the inflation rate rather than the price level, it matters a lot for getting your expectations about the future right. People who think inflation has gotten worse over the past year will have wildly distorted expectations about what prices are likely to do in the future.

And of course the difference between price level and inflation is important for determining whether a government has handled inflation effectively, which is where the discussion switches from economics to politics.

GDP is more than just a number: it's just a number denominated in dollars. Inflation makes all numbers denominated in dollars go up sooner or later, except my bank balance. It doesn't do the same to numbers denominated in tons, barrels, or bushels.

@DKNguyen - Presumably, that is why they also ask whether people believe that median income has risen faster than prices. Though that has its own limitations: if median income has been rising by a certain rate, but then prices start rising by even more, I can reasonably be disappointed that my spending power is lower than I believed it would be.

@hobbs The GDP growth numbers are inflation-adjusted. That is what is meant by "real GDP growth rate" in the BEA link.

Isn't your 5th point also hugely important when income-inequality is large? For many people the prices have risen more than their wages, regardless if for some other people this is not the case.

@Ivana I think inequality is definitely a part of why GDP growth rate isn't too relevant to individuals, but even in the absence of inequality, per-capita GDP growth only correlates to personal wealth in the long run. Day to day you won't see much difference. And of course, GDP is an imperfect measure of societal wealth to begin with. So, I don't really blame people for not being too excited about GDP growth figures, but it's still the case that many people currently think that GDP growth is much lower than it actually is.

@Ivana Regarding your second point, it is definitely true that inflation was outpacing wage growth at the height of the inflation episode. However, that trend reversed during 2023. It's too early to see if the new trend will continue, but many, perhaps most, people are unaware of the reversal. Even professionals get tripped up by it. The New York Times ran a guest opinion piece on the subject recently, and the author wrote at length about wages not keeping up with inflation, apparently not noticing that her own data suggested that her thesis might no longer be true.

@Obie2.0 How many people even know what median actually means? Seems like trying to clarify a confusing question with another confusing question.

@Nobody Also, like prices but in reverse, it's a losing game if wage growth only ever matches inflation half the time by inflation outpaces wage growth the other half the time. Then for an economist to say inflation right now isn't so bad misses the tangible point that affects people's lives.

One very big factor is the disparity between how different sectors of the economy are impacted. Its not just a political divide, but economic class divisions. There are some sectors with an abundance of job creation and openings, and others with layoffs. Further, food and housing prices have far outpaced wages, so there is a giant downward push on the economic ladder that disproportionately influences lower income brackets. The worst offenses I think are the numbers themselves. They're all international economic indicators. People care about the local economy, which hasn't been improving.

@DKNguyen No disagreement there, but if you look at the data ( bls.gov/opub/ted/2023/… ) you'll see that declining real wages are very much the exception, not the norm. So, the inflation episode from 2021-2022 looks like crisis, and what is happening now is very relevant to the (political) question of whether the crisis has been handled or not.

@DavidS I'm not sure what you mean by "international" indicators. All of these indicators are computed over the US, not internationally. To your larger point, it's possible that some of the negative sentiment is due to people who are experiencing a worse economy than the national average extrapolating from their personal situation. However, it's really not plausible that ~70% of respondents are doing worse than the national average. Moreover, polls that ask about respondents' personal situation find a lot of people that are doing OK personally, but think the national economy is doing badly.

@Nobody The boiled down economy numbers are better at comparing countries to each other than it is to measure the health of the nation against itself. The economic indicators do a stupendously poor job of offering a clear picture of local economic health that the average person experiences. Partly because of the size of the US and partly because of how different sectors are independently performing. Another issue is the disparity between professional and lay understanding of the economy, what it is, and what healthy or good even mean.

@DavidS I don't think your theory really explains the facts at hand. Of the economic indicators commonly polled, only GDP could plausibly be considered irrelevant to a person's individual experience. The rest, particularly inflation and unemployment, are fairly relevant. Even for GDP I'd say that "stupendously poor" overstates its flaws (which it definitely does have) as an indicator of national welfare. It is certainly true that the economy isn't homogeneous, and even when the economy is doing well some individuals will be doing poorly, but as I said above, I don't think that explains …

the polling results on these topics. If 90% of people are getting the real wage growth question wrong and 73% are getting the inflation question wrong, that's too many to explain away as just having an individual experience that isn't following the national trend. And, as I said before, in polls that ask about both individual economic situation and national economic performance you find a lot of people who are personally doing well but are convinced that the country as a whole is doing poorly.

@Nobody I'm adding to the answer's list of reasons for the polling results. There are a lot of contributions to why the answers aren't lining up. My theory isn't meant to be to sole source, but a contribution. In conjunction with your points, people see this new downward push they're fighting against. Food and housing experiencing higher than the average inflation disproportionately affects a larger % of people. This means even if someone is doing ok, they probably talk to one or more people that aren't faring as well.

Anecdotally, it can even be seen in the very successful business people who are more in touch with the data on performance facts. I still remember watching Warren Buffett on YouTube saying "I wish there were a 9% return I could recommend you" to a person asking for opportunities, when the average performance of Berkshire was at LEAST 25% average annually when I looked on their letters. Obviously it depended on the year and the state of the economy, but I was amazed he was so pessimistic. And obviously he is more aware of his performance than almost anyone on the planet

In addition to point 2, the article question is about change in inflation rate, i.e. 2nd derivative of price/cost. It is notoriously easy to get people confused about this. In addition to the "general" confusion caused by change-of-change, it is even further removed the price/cost which is the relevant measure for most people. And, the 2nd derivative is of course far more wiggly/noisy and thus more suitable for generating click-bait.

Great answer to adress the fact that plenty of other polls show that Americans tend to currently view the economy more pestimistically then it is. However i'd also add that about half of the OP questions refer to wealth only without adjusting to inflation. Humans tend to (...partially...) consider real buying power. Ie people were being asked about wealth but their response was likely their view of their effective wealth after inflation which is not as positive. The pool basically asked questions that were designed to get bad answers.

Is it possible that the economic indicators that are being widely used to say the American economy is in good shape are not able to give a complete and/or accurate picture? Some metrics seem to be ignored in economic reports. For example, the most recent survey data (admittedly from January 2022) of homelessness in America found an all-time record high number of homeless people: endhomelessness.org/homelessness-in-america/… The stats shown in the question are not necessarily a good picture. For example, medians are notoriously skewed.

@ToddWilcox I'm pretty sure that people are even less up to date on homelessness statistics than they are of inflation and GDP numbers.

I was thinking the GDP and inflation stats mean nothing compared to what your actual life is like. Homeless people themselves don’t care about statistics. I suspect only economists, investors, and politicians care about statistics. Do I have more debt and less in my savings than I used to? If yes then the economy is bad from my point of view.

@ToddWilcox It's certainly true that people do tend to extrapolate from their personal circumstances, but there are at least three problems with that as an explanation for these pools. First, in polls that include questions about the respondents' personal circumstance, you tend to find a lot of people who claim that they are doing well, but the economy as a whole is doing poorly. Second, many of those economic indicators are calculated by aggregating across the population. If it were true that 90% of people were seeing prices rise faster than wages, then there is no way you could get

aggregate measures that show the opposite. Third, for some of the metrics, like inflation, there isn't really enough variation in personal experience to explain the disconnect. That is, inflation has gone from 7% to 3%, yet many people think it has gone up. It's simply not plausible that for those people, personally, prices are still going up by 7% per year.