Americans have spent the better part of the last four years navigating a changing cost-of-living landscape. The pandemic shock gave way to the fastest inflation in four decades. And while that episode has largely passed, the current public mood still harbors deep resentment about rising prices. Commentators are calling it an affordability crisis. Politicians insist they have the cure. Yet the debate suffers from a muddled understanding of what “affordability” even means, and the resulting policy conversation often chases the wrong targets.

Prices rose sharply from 2020 through 2023, forcing a collective reevaluation of what everyday life costs. Even now, with inflation settling back closer to the Federal Reserve’s 2 percent target, many households still feel as though they are pinching pennies. The president has dismissed concerns as political posturing, but the public’s anxiety suggests something real is happening. Once a higher price level becomes entrenched, families must adjust to it, whether or not their expenses keep rising. The Biden administration oversaw the inflation, and the second Trump administration is now presiding over the adjustment. Economic conditions are improving, yet the sense of strain has been slow to fade.

Some confusion seems to stem from how one defines affordability. Some in the Trump administration speak as if affordability and inflation are interchangeable terms. By that definition, there is genuine improvement in affordability. The inflation rate is lower than during the Biden period, when 8 or 9 percent readings were common. Today, the measured rate hovers around 3 percent and occasionally slips below that. The worst of the inflation is indeed over for now. But the level of prices is what shapes people’s lived experience, and the level remains markedly higher than before. This has psychological repercussions if nothing else.

For roughly eighteen months, nominal wage growth in many sectors has outpaced inflation modestly, allowing workers to claw back some of the purchasing power they lost during the initial inflation shock. However, this growth may be moderating. Moreover, wage catch-up is gradual. Even when real income trends are positive, people may feel stuck because they are still catching up to the higher price level, which greets them every time they open their wallet. There is also the problem of measurement. If productivity is overstated or inflation understated, the rebound in real wages may be illusory.

Inflation refers to a broad, sustained rise in prices. Once that happens, the entire price structure........

© Forbes