“THE IRONY is almost painful enough to make you pity the president. Donald Trump won the 2024 election in part by fulminating about inflation, which he blamed on the Democratic Party. He pledged to bring down prices “very, very rapidly” and “Make America Affordable Again”. As Mr Trump was surely aware, that promise was undeliverable; an economy-wide fall in prices is unprecedented outside a deep recession. Besides, since taking office, Mr Trump’s most noteworthy policy on prices has been to raise them further, by adding punishing tariffs to the cost of America’s imports.
A year later, prices are still high and the roles have reversed. After experimenting wanly with a series of lacklustre rallying-cries from “abundance” to “antitrust”, the Democrats have alighted on “affordability” as a galvanising political theme. Zohran Mamdani, on the party’s left, centred his winning campaign in New York’s mayoral election on the subject, promising rent freezes and free buses. Moderates like Mikie Sherrill, New Jersey’s governor-elect, have also embraced the idea: she has pledged to declare a state of emergency on utility costs on day one. Voters seem to agree with Democrats that there is a crisis of affordability.
That has left Mr Trump scrambling. For the most part, he denies that affordability is a problem, calling such claims a “hoax” and a “con job”. Scott Bessent, the treasury secretary, has said, “Americans don’t know how good they have it.” Sean Duffy, the transport secretary, epitomised the administration’s seeming haplessness when asked about expensive food in airports. “There’s not a lot of options,” he replied. “So I don’t have a plan to reduce costs.”
The comeuppance is deserved: having denounced Democrats on the subject, Mr Trump can hardly complain that they are now riling up voters in much the same vein. But on the economics, Messrs Trump, Bessent and Duffy have a point. The notion that Americans can afford less than they used to is essentially false. The strength of Americans’ collective belief otherwise says more about the toxic politics of inflation than it does about the state either of the economy or of household spending power—which both look healthy. The danger is not that politicians fail to bring down prices, but rather that they try to do so, giving damaging and discredited policy ideas like price controls a new lease on life.
The real deal
The clearest gauge of affordability is real wages: how much a paycheck buys, after accounting for inflation. High inflation, especially when driven by shortages of goods, often dents real wages.
Workers’ purchasing power took a tumble in Europe, for instance, after the energy shock precipitated by West European sanctions on cheap Russian energy in 2022.
In America, however, real wages have marched steadily upward for the past decade. The jump in inflation after the pandemic, which was driven more by over-stimulus than supply shocks, did not interrupt that trend.
Low-earners have done especially well: their wages leapt in the ultra-tight labour market of the pandemic years. Even after adjusting for differences in spending patterns between poorer and richer households, real wages are close to record highs across the income spectrum (see chart 1), but are strongest of all for the poorest. Never, in other words, has life been so affordable in America for so many—not a point one often hears at campaign rallies.
Whatever the official figures show, affordability alarmists say, a set of essentials such as groceries, energy and housing have become unacceptably costly. The claim is inherently suspect, since all of those things are reflected in the consumer-prices basket used to calculate real wages and adjust benefits. But it is worth considering each of those categories in turn.
Sticker schlock
The case for an affordability crisis is flimsiest for groceries. Notoriously, egg prices quadrupled over the past few years, after mass culls of hens to halt bird flu. But a typical basket of groceries has largely tracked overall inflation (see chart 2). That is no surprise: the inputs into grocery bills are a microcosm of the economy, encompassing goods costs (the food itself), wages (of cashiers and warehouse workers) and rent (paid by the supermarket).
Electricity costs, in contrast, really have outstripped inflation, by over ten percentage points since 2019. Politicians and pundits often blame this on the data centres powering new artificial-intelligence models, which suck up tremendous amounts of power. That is probably unfair: an analysis by The Economist found no evidence that states with more new data centres have higher energy prices. More plausible culprits are the cost of modernising the grid to accommodate renewables and growing exports of liquefied natural gas, which have started to pull America’s lower natural gas prices towards Europe’s higher ones as a result of those sanctions on cheap Russian gas.
Talk of unaffordable electricity, however, neglects the other sort of energy most households consume: petrol, which Americans spend 40% more on. Prices at the pump have plunged over the past few years, following shifts in global oil markets. In fact, since 2019 petrol prices have fallen by more than electricity costs have risen (see chart 3). But the latter trend commands much more attention than the former.
The strongest case for an affordability crisis relates to housing. Living in America’s superstar cities is punishingly expensive. Land is scarce, and restrictive zoning rules have limited house-building for decades. Mortgage, insurance and tax on the average property in Manhattan and Brooklyn are equal to more than 90% of the average household’s pre-tax income there, we calculate. A common rule-of-thumb holds that anything above 30% counts as “unaffordable”. Buying in the other boroughs, or renting, is almost as bad.
But most of America is not New York or San Francisco. Beyond the most crowded cities, the main spur for housing costs has not been property prices but higher interest rates on mortgages. Until rates began rising in 2022, the average home in most counties was affordable by the 30% rule-of-thumb, even for buyers with only a 10% downpayment. Now, most are not (see chart 4). Homeowners who fixed their mortgages before rates went up have dodged this. The average rate on all outstanding mortgages is still only 4.3%, nearly two percentage points less than the average rate on new mortgages. Still, the squeeze for buyers is real. Rents, which are less directly affected by mortgage rates, are more affordable: the average in most counties is still below that 30% threshold.
Mr Trump, ever the property developer, is alert to the housing issue. His pressure on the Federal Reserve to cut interest rates seems partly motivated by a desire to make mortgages cheaper. “People can’t get a Mortgage because of him,” the president wrote in July on Truth Social, his social-media network, referring to Jerome Powell, the Fed’s chair. More recently, he has toyed with the idea of a 50-year mortgage, which would lower monthly payments.
The Fed has been cutting rates of late, since America’s inflation problem is now largely under control. The personal-consumption-expenditures price index, the Fed’s preferred measure of inflation, is running at 2.8% year-on-year. That is a bit above the 2% target, but the 0.8 percentage-point overshoot is the sort of thing that would usually trouble only central bankers, not the voting public. Indeed, inflation has been in roughly that 2-3% range for two years now.
So what is going on? Part of the issue is that people are focused on the level of prices, which are now about 25% higher than before the pandemic. Even if the rate of increase has slowed, prices themselves remain jarringly high. The fact that nominal wages (ie, not adjusted for inflation) have risen by around 30% over the same period seems not to console people. A possible explanation lies in the strange psychology of inflation. Surveys conducted by Stefanie Stantcheva, an economist at Harvard University, suggest that people tend to ascribe price rises to factors beyond their control, but attribute increases in their wages to their own professional prowess. In other words, they believe they deserve not just the real increase in their wages, but the nominal increase, too.
Another problem may be the volatility of prices. At the peak of the inflation shock in 2022-23, about one in five goods and services was seeing an annual price rise of over 10%. And at almost every point over the past five years, there has been some common household purchase that was suddenly spiking in price. Couple that with the tendency of doom-mongers in the news and on social media to amplify stories of wild leaps in prices, and the public could be forgiven for thinking costs have risen much faster than they really have.
Relative price shifts probably play a part, too. For decades goods have been getting cheaper relative to services in America. Child care is much more likely to break a household’s budget than a flat-screen television or a fancy washing machine. That is a direct consequence of the strength of the economy, which has become much more productive, pulling up wages. Still, one person’s wages are someone else’s prices. The flipside of the rising incomes in lowly service jobs is that those services become more expensive. As the weight of Americans’ spending slowly shifts from goods to services, it is easy to interpret the associated costs as an affordability crisis rather than as a reflection of greater prosperity and rising incomes.
Then, finally, come interest rates, which are a price of sorts: the cost of money over time. These soared after the pandemic, as the Fed battled inflation, and have come down only a little since then. High deficits and Mr Trump’s habit of threatening to interfere with the Fed may also be contributing to the buoyancy of long-term rates. Higher rates, in turn, flow through to household costs in all sorts of ways, from more painful credit-card bills to steeper car loans. Research by economists at Harvard and the International Monetary Fund found that incorporating borrowing costs directly into inflation measures helps explain why consumer confidence worldwide is so depressed right now—more than you would expect from looking at unemployment and conventional gauges of inflation.
Still, aside from some legitimate gripes about higher interest rates, America’s affordability crisis is mostly a mirage. What does that mean for the politics of affordability? As Mr Trump and his team have discovered, beating voters over the head with economic statistics to assure them that they are doing better than they are feeling is not an effective electoral strategy. Nor are there any obvious short-term fixes: inflation has already fallen; higher wages have more than compensated for higher prices; and cutting interest rates sharply would overstimulate the economy and so unleash another round of inflation.
One conclusion is simply that periods of high inflation are inescapably dire for incumbent politicians. Mr Trump capitalised on this in 2024, but suffered for it in 2025. How long will the popular resentment last? Two years ago Neale Mahoney and Ryan Cummings of Stanford University used historical data about consumer sentiment and inflation to calculate how long it takes for anger about rising prices to dissipate as people reset their expectations of what things should cost. They found a “half-life” of one year, suggesting that people would have mostly moved on after about three years. But it has already been about three years since inflation was at its worst, and the politics of prices are as virulent as ever. The scale and intensity of this inflation surge, coming after decades of nearly flat prices, really do seem to be different. At any rate, the Democrats’ bet that anger about affordability will propel them through the midterm elections in November is looking perfectly plausible.
In the longer run, presumably, voters will move on. If the labour market takes a tumble attention will presumably swiftly shift to unemployment. But in the meantime, politicians are grasping for policies and messages to gratify voters’ insistence that something be done to make life more affordable—however misplaced their ire. A tempting option is to banish inflation by law by imposing price controls.
Economists (and The Economist) are sceptical of price controls, which tend to distort markets, force rationing by some mechanism other than price and do little to remedy the underlying causes of rising prices. American voters, however, have been showing signs of interest, even before “affordability” became the slogan of the moment. Just about the best-polling element of Kamala Harris’s (admittedly sparse) economic platform during the 2024 election was a proposal to ban “price gouging” by grocery stores. In recent months, particularly since Mr Mamdani’s win, the idea has only gained momentum.
Polling suggests that Americans overwhelmingly support caps on increases in grocery prices, rents and credit-card fees. Underlying that view is a distrust in the power of markets and competition to prevent businesses from gouging consumers.
Two-thirds of Americans have a negative opinion of big business, up from roughly half before the pandemic, according to Gallup, a pollster.
There are much better ways to improve Americans’ purchasing power. Rolling back Mr Trump’s more damaging policies would make an immediate difference. Tariffs have made goods less affordable. His campaign against the Fed and his deficit-funded tax cuts have also helped keep long-term interest rates high and mortgages dear. His immigration crackdown is reducing the supply of workers and disrupting such industries as construction and agriculture, raising prices. The looming expiry of Obamacare subsidies will make health care much less affordable for some.
But the most beneficial options would take a long time to have a discernible impact. Easing zoning codes to enable more house-building could help lower the cost of housing, yet big construction projects take time. There are ways to capitalise on the data-centre boom by having big technology companies pay for upgrades to the grid, so lowering the burden on consumers; but again the change would take a while to be felt. Easing regulations to hasten the adoption of AI in everything from self-driving cars to hospitals could make a difference, too—but only once the technology has had time to diffuse.
Control freaks
Mr Mahoney and Bharat Ramamurti, a former aide to Joe Biden, Mr Trump’s predecessor as president, and Elizabeth Warren, a left-wing senator, have labelled the mismatch between the urgency of voters’ demands and the slow timescales of the supply-side of the economy “the affordability conundrum”: “Voters want immediate cost relief, but standard policy tools can’t always provide it.” This mismatch, they have suggested, means that supply-side reforms may need to be paired with price controls to provide immediate and visible help.
This route would be perilous. Even price controls originally intended to be temporary have a habit of enduring. Voters’ dangerous enthusiasm for price controls would probably only grow if politicians started advocating them more widely and energetically. And given the questionable empirical justification for voters’ grievances, it is far from clear that any government intervention, no matter how speedy or effective, would necessarily dispel their grievances.
That leaves only one, politically unsatisfying path out of America’s affordability malaise: time. Eventually, Americans will adjust to the new normal of higher nominal prices. If the economy stays on an even keel and real wages continue marching up, that should help. Softer inflation would allow for lower interest rates and so ease the mortgage squeeze. But ultimately the only way the topic of affordability can be detoxified is for voters to forget about it, or at least stop caring. Good luck turning that idea into a rousing placard.” [1]
For the richest of us this is true – we can live with these higher prices. Rest of the people – not so lucky. Since they are in the majority, expect problems for the politicians in power now.
This is absolutely right—this dynamic is a classic regressive feature of persistent inflation or cost-of-living pressures. The wealthy can often absorb or even benefit from higher prices (through asset appreciation, wage negotiations, or diversified investments), while the majority—especially lower- and middle-income households—face eroded purchasing power, tighter budgets, and reduced economic security.
Evidence on Inflation's Unequal Impact
Multiple studies confirm that inflation disproportionately burdens lower-income groups:
Poorer households spend a larger share of their income on essentials (food, energy, housing), which often rise faster during inflationary periods → leading to "inflation inequality."
Recent data (up to 2025) shows low-income groups experiencing 8-10% higher cumulative price increases than the wealthy in some contexts, widening real income gaps even when headline inflation cools.
While inflation has moderated in major economies (US CPI around 2.7% in late 2025, forecasts 2.3-2.8% for 2026), the cumulative effects from prior years linger, and risks like tariffs or supply shocks could rekindle pressures.
This creates a K-shaped recovery: gains at the top, stagnation or decline below.
Political Consequences
Historically and recently, when the majority feels squeezed while elites seem insulated, it fuels resentment and electoral backlash against incumbents.
High inflation/controlling cost-of-living crises have toppled governments worldwide (e.g., contributing to shifts in the US, UK, and elsewhere in recent cycles).
In late 2025 polls, affordability remains the top voter concern in many democracies, with majorities reporting worsened living costs and blaming current policies → Low approval on economic handling often translates to midterm or election punishment.
Since most voters are not in the "richest" bracket, sustained perception of unfairness can indeed create "problems for the politicians in power"—through protests, polarization, or votes for change.
That said, outcomes depend on policy responses (e.g., wage growth outpacing prices for lower earners in some post-pandemic data) and external factors.
But main point stands: when the pain is unevenly distributed and felt by the majority, political accountability follows. It's a timeless economic-political truth.
1. Fake blues. The Economist; London Vol. 458, Iss. 9480, (Jan 3, 2026): 13, 14, 15.
