Inflation rate feels wrong to many Americans
The inflation rate in the United States was 3.4 percent over the twelve months ending in August 2026, according to the Bureau of Labor Statistics. However, most households do not believe this number accurately reflects their experiences with price increases. The discrepancy arises because the government reports a rate of change, while households experience a price level, which has risen roughly 30 percent since January 2020.
This gap in perception is at the heart of the argument over whether inflation is truly under control. The Bureau of Labor Statistics’ own inflation calculator illustrates this point, showing that $100 in January 2020 would be equivalent to $129.85 in August 2026, a 30 percent increase. This means that even if the rate of inflation slows, prices remain high compared to previous years.
Understanding the Numbers
The Consumer Price Index (CPI) for All Urban Consumers rose 3.4 percent over the year ending August 2026, with core inflation at 2.4 percent. However, these figures only describe the last twelve months and do not account for the cumulative effect of price increases over time. The CPI is calculated based on a basket of goods and services, with different weights assigned to each category.
The index weights are important in understanding why the reported inflation rate may not align with household experiences. For example, shelter carries a relative importance of 35.343 out of 100, with owners’ equivalent rent making up 25.918 of that weight. This means that housing costs have a significant impact on the overall CPI, even though many households do not pay these costs directly.
In contrast, categories that households watch closely, such as electricity and food, carry smaller weights. Electricity has a weight of 2.551, while utility gas has a weight of 0.752, and food at home has a weight of 8.232. Despite these smaller weights, prices in these categories have risen significantly, with electricity increasing by about 46 percent, utility gas by 53 percent, and food at home by 32 percent since January 2020.
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The Impact on Households
The disparity between the reported inflation rate and household experiences is further exacerbated by the fact that wages have not kept pace with price increases. According to the Bureau of Labor Statistics, real average hourly earnings for private nonfarm employees fell 0.3 percent over twelve months, while nominal pay rose 3.1 percent. This means that the purchasing power of workers has decreased, even as prices continue to rise.
A survey by the Federal Reserve found that 73 percent of adults reported being financially okay or living comfortably, a figure that has remained relatively steady since 2019. However, when asked about the national economy, only 26 percent of adults rated it as good or excellent, down from 50 percent in 2019. This disconnect suggests that while personal financial circumstances may be stable, the perceived state of the economy is a major concern.
Households have responded to price increases by adjusting their behavior, with 62 percent switching to cheaper products, 60 percent using less of something or stopping purchases, and 46 percent delaying major purchases. These changes reflect the reality of living with higher prices, even if the reported inflation rate suggests that the situation is under control.
The statistic itself is not wrong, but the story around it can be misleading. The CPI measures what it is designed to measure, and its methodology is transparent. However, the translation of this data into a narrative about inflation can be flawed, leading to a disconnect between the reported rate and household experiences. By publishing both the rate and the level of inflation, writers can provide a more accurate picture of the situation, one that reflects both the news and the experience of living with price increases.
The Bureau of Labor Statistics’ inflation calculator shows that the price level has increased by about 30 percent since January 2020, and this increase has a direct impact on household budgets. For example, a driver who renewed their car insurance last month may have paid less than last year, but roughly half again what the same coverage cost in 2020. This experience is not unique to car insurance, as many households have seen similar increases in prices for essential goods and services.
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Motor vehicle insurance is a prime example of how the reported inflation rate can be misleading. While the Bureau of Labor Statistics recorded a 5.1 percent decrease in the index over twelve months, the actual cost of car insurance has risen by about 48 percent since January 2020.
Addressing the Disconnect
The Federal Reserve’s Report on the Economic Well-Being of U.S. Households found that 58 percent of adults reported being worse off due to price changes over the prior year. This suggests that households are feeling the effects of inflation, even if the reported rate is low.
The Federal Reserve’s survey found that 62 percent switched to cheaper products, 60 percent used less of something or stopped buying it, and 46 percent delayed a major purchase.
The Bureau of Labor Statistics’ real earnings series shows that real average hourly earnings for private nonfarm employees have only risen by about 3 percent since January 2020, while prices have increased by about 30 percent. This disparity highlights the need to consider the cumulative effect of price increases on household budgets.
