The curious psychology of inflation

The year over year CPI for May was just released, and it would be good news for Joe Biden if that were something that was a theoretically possible event for our Even the Liberal media, as the 3.3% number undershot expectations. Inflation has been at about what overall has been the post-WWII average level for awhile now, although it remains higher than the extraordinarily low level it was at during the previous decade, which clearly has shifted many peoples’ baseline expectations in this regard.

Speaking of which, here’s a little anecdote which you can use for data: When I was between grad school and law school in Ann Arbor in the mid-1980s, I was working at my first full-time job, as a writer for a magazine. I would occasionally — maybe once every two or three months — go to a sort of fancy restaurant on Main Street (h/t Bob Seger) called Maude’s, which Ann Arborite LGMers of the era will probably remember. They had what was for the time a high-end burger with mushrooms and other forms of cultural Marxism that I really liked, which cost $8.95. This is about $25.50 in 2024 dollars, which I would consider an extreme price to pay for a similar item today.

But here’s the kicker in all this: In real dollars, my annual income is currently about seven times higher than it was then. So if you adjust for that, this burger would cost me about $180 today, which I would consider perhaps just a bit extravagant.

Now at the time I didn’t have any dependents or a mortgage, or a bad knee etc., so the comparison is fraught in a number of ways. But here’s the point of this little stroll down memory lane: Somehow, the nominal price back in 1986 just seems much lower to me now, and seemed much lower at the time, than the real price — real here meaning both adjusted for inflation, and adjusted for my drastically different economic circumstances.

Make of this what you will.