This researched was published on October 23, 2024

The public debate about inflation has caught on to what economists have long known: Price change—aka inflation—and prices are not the same thing. Though inflation has fallen back sharply over the last two years, prices have not dropped—they have merely risen more slowly. And while politicians promise lower prices on the campaign trail, the dirty little secret is that nobody wants prices to fall across the board. Falling prices constitute deflation, inflation’s ugly cousin.

So, are American voters stuck on a plateau of higher prices? Not quite. Wages matter just as much as prices. If the prices of all goods doubled in one year, consumers would face dire circumstances. But if wages also doubled, any financial injury would be largely psychological. What ultimately matters is price affordability—the ratio of prices and wages.