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Inflation ticked higher in March, according to new Labor Department data released yesterday.

The consumer price index (CPI) rose 0.4 percent last month and 3.5 percent annually, largely in line with economist projections. Economists had anticipated inflation would increase 0.4 percent in March and 3.4 percent annually.

The latest numbers come after two months of hotter than expected inflation data. Consumers prices were up 3.2 percent year over year in February and 3.1 percent in January.

The American public has been responding to inflation negatively for some time and yesterday’s CPI will only add to their angst.  Nobel Laureate Paul Krugman analyzes people’s perceptions of inflation in his column in today’s New York Times.  Here is an excerpt.

“I wrote recently about a couple of Quinnipiac swing-state polls that asked registered voters about both the economy and their personal finances. In both Michigan and Pennsylvania — states crucial to the outcome of this year’s presidential election — more than 60 percent of respondents rated the economy as not so good or bad; a similar percentage said that their own situation is excellent or good.

Americans are upbeat not just about their own circumstances; they’re also upbeat about their local economies. A recent Wall Street Journal poll of swing state voters found that voters have negative views of the national economy but significantly more positive views about the economy in their state. This is consistent with the Federal Reserve’s report on economic well-being for 2022 (published in 2023), which shows a much higher percentage of Americans assessed their local economy as good or excellent than the percentage who said the same about the national economy.

Basically, Americans are saying, “I’m doing OK, people I know are doing OK, but bad things are happening somewhere out there.” As The Journal’s Greg Ip wrote, “When it comes to the economy, the vibes are at war with the facts.”

What explains this disconnect? Inflation surely contributes to bad feelings about the economy. New research by Harvard’s Stefanie Stantcheva confirms an old insight: When both wages and prices are rising, people tend to believe that they earned their wage increases but that inflation took away their hard-won gains.

However, inflation aversion doesn’t explain why people think their state is doing well but the nation is a mess.

The elephant in the room — and it is mainly an elephant, although there’s a bit of donkey too — is partisanship. These days, Americans’ views of the economy tend to be determined by political affiliation rather than the other way around.

This is true for supporters of both parties, but statistical analysis shows that the effect of partisanship on economic perceptions is much stronger for Republicans — who for much of last year were roughly as negative about the economy as they were in the aftermath of the 2008 financial crisis and during the stagflation of 1980 — so the fact that a Democrat is president drags down average consumer sentiment. Any discussion of economic perceptions that doesn’t take this factor into account is missing a big part of the picture.

It’s not hard to see where this asymmetry comes from. Republican politicians and media are united in trashing the Biden economy, which Donald Trump says is “collapsing into a cesspool of ruin,” in which “stores are not stocked” — something that simply isn’t true. Democrats, on the other hand, are divided, with some progressives talking down the economy because they fear that acknowledging the good news might undermine the case for strengthening that weak social safety net.

If you ask me, more progressives should celebrate the current economy, not just to help Biden get re-elected, but because economic success vindicates the progressive vision. I’d argue that Biden deserves some credit for the good news, but the more important point is that policies like the expansion of Obamacare and student debt relief have not, contrary to conservative predictions, dragged the economy down — which means that it’s OK to call for more.”

Fine analysis!

Tony

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