Over the past few years, inflation has undergone significant shifts, reflecting broader changes in the global economy. Before the pandemic, inflation hovered around 2%, but it plummeted to 0.1% during the economic shutdowns of 2020. As economies reopened and supply chains struggled, inflation surged rapidly, peaking at 9.1% in June 2022. Since then, despite efforts by central banks to curb inflation through interest rate hikes, progress has been slow. In recent months, the annual inflation rate has fluctuated between 2.4% and 3%, with November's slight uptick to 2.7% raising some concerns. However, there are signs that public sentiment is shifting, as people adapt to higher prices and express optimism about their personal finances.

The Evolution of Inflation Trends

Initially, inflation's rapid rise was driven by supply chain disruptions and pent-up consumer demand following the pandemic. The reopening of economies led to a surge in prices, particularly in sectors like housing, which saw a 4.7% increase over the past year. Although housing inflation remains elevated compared to pre-pandemic levels, it has been gradually slowing down from its peak of 8.2% in 2022. This deceleration suggests that while prices are still high, the pace of increase is moderating. Moreover, wage growth has outpaced inflation for much of this year, providing some relief to consumers who were initially feeling the pinch.

The journey of inflation has been marked by significant volatility. From the lows of 0.1% in May 2020 to the peak of 9.1% in June 2022, the economic landscape has seen dramatic changes. Central banks, including the Federal Reserve, have responded with aggressive interest rate hikes, but the impact on inflation has been limited in recent months. Between June 2023 and June 2024, inflation remained within a narrow range of 3% to 3.5%. The November CPI report, showing a slight increase to 2.7%, may seem concerning, but it also indicates that inflation is stabilizing at lower levels. Housing costs, which have been a major driver of inflation, continue to decelerate, suggesting that the worst may be behind us. Additionally, wage growth has provided a buffer for many households, helping to offset the effects of higher prices.

A Shift in Public Sentiment

Despite ongoing price increases, there has been a noticeable shift in how people perceive inflation. A survey from the Federal Reserve Bank of New York revealed that consumers expect inflation to remain stable in the coming years and feel more optimistic about their financial situations. Fewer people anticipate being worse off financially, and there is a reduced fear of missing debt payments. This change in sentiment could be attributed to several factors, such as rising wages or the positive performance of stock markets. Alternatively, it might simply reflect a growing acceptance of higher prices—a phenomenon akin to "price acclimatization."

The concept of acclimatization, originally used to describe the body's adaptation to high altitudes, can be applied to how consumers are adjusting to higher prices. Just as climbers gradually adapt to thinner air, people are becoming more accustomed to the new economic reality. While some may still grumble about specific categories like groceries or childcare, the overall agitation about inflation appears to be waning. Over the past five years, prices have risen by 22.7%, significantly higher than the 8.9% increase observed in the preceding five-year period. Despite this, the public seems to be adapting, signaling a potential long-term shift in how we view and react to inflation. This adjustment process suggests that while sticker shock persists, the emotional response to higher prices may diminish over time.