American consumers are experiencing one of the longest periods of high inflation in nearly a century, and a growing number of people are beginning to accept high prices as the new normal, a shift that is sounding alarm bells within the Federal Reserve. The Consumer Price Index (CPI) released this Wednesday (October 14th) showed that the CPI rose 3.7% year-on-year in September, meaning that the US CPI has remained above the generally accepted inflation target of 2% for approximately 65 consecutive months, or more than five years. This prolonged period of rising prices is casting a shadow over ordinary Americans' assessment of the economic outlook and will affect their budget planning next month, and even influence their voting choices in the midterm elections. At the same time, Federal Reserve policymakers are beginning to worry whether consumers' inflation expectations have become so deeply entrenched that they are difficult to effectively suppress.

High inflation has lasted for an all-time long period, with average increases at historically high levels.

The current period of persistent inflation is among the longest in modern American history. An analysis of data from the U.S. Bureau of Labor Statistics by CNBC shows that the record of monthly CPI exceeding 2% for consecutive months is the longest such period since the beginning of the 21st century. Going back to the late 1940s, only two other periods of prolonged high inflation have occurred in U.S. history. Since inflation began exceeding 2% in early 2021, the average CPI reading has remained around 4.5%. The last time such a high average for a consecutive period was during the late 1980s. Consumer inflation expectations are also rising. A consumer expectations survey released last week by the New York Federal Reserve showed that one-year inflation expectations rose 0.3 percentage points to 3.9% in September, the highest reading in more than three years. Public concern about rising prices has extended from actual data to future expectations.

Inflation expectations may become a "self-fulfilling prophecy," casting doubt on the effectiveness of monetary policy.

The core concern of central bank officials lies in the possibility that businesses and consumers may begin to permanently adjust their behavior to adapt to high prices, a change that could have a ripple effect across the entire economy. Businesses anticipating rising costs may preemptively raise prices for consumers; workers anticipating persistent inflation may demand larger wage increases to hedge against the impact of price increases. All of these behaviors could turn inflation into a self-fulfilling prophecy, undermining the effectiveness of the Federal Reserve's monetary policy. Economist Gary Richardson, a former historian at the Federal Reserve, stated that inflation expectations must remain anchored for monetary policy to effectively and predictably influence the economy, and this should be a primary objective for any central bank. Currently, Federal Reserve officials are closely monitoring consumer responses to inflationary pressures. Minneapolis Fed President Neel Kashkari revealed at an event last month that a union leader told him that inflation was worse than a recession for its members, a conversation that influenced his view on the internal trade-offs of the Fed's dual mandate. At a gathering of economists in Ohio, Cleveland Federal Reserve President Beth Hammack said she would not take for long-term inflation expectations to remain anchored, as the risk of inflationary thinking becoming entrenched and a persistent inflationary mentality is rising as inflation continues to climb.

High prices are squeezing people's lives, and consumer confidence has plummeted to an all-time low.

In Hammark's district, the Cleveland Fed president stated via social media that she has observed residents making "trade-offs" rather than "downgrading" their spending, such as having to choose between buying groceries and paying essential bills. After years of high inflation, consumers are deeply frustrated by the cumulative price increases in daily life, compounded by the fact that inflation has outpaced wage growth in recent months, leading to a continued decline in the real purchasing power of ordinary consumers. The University of Michigan's consumer confidence survey, closely monitored, fell to a historic low earlier this year. For the first time ever, the percentage of respondents citing high prices as the primary reason for their deteriorating personal finances will exceed 50% by 2026. Joanne Hsu, director of the University of Michigan survey, stated that high prices are dominating consumer thinking, which they still view as an unacceptable reality. Compared to Democratic voters, Republican and independent voters saw a more dramatic decline in consumer confidence this year. The unresolved question now is whether voters dissatisfied with rising living costs will lead to a change of control of Congress from the Republican Party and President Trump in the midterm elections.

Experts advise: Prices may not fall, but wage growth is expected to outpace inflation.

Despite the pessimistic outlook for the public, economists warn that ordinary Americans should not harbor illusions about prices falling from current levels. Deflation, where annual price increases fall below 0%, could actually drag the U.S. economy into a downward spiral. A more realistic hope is for inflation to fall below wage growth over the next 12 months. If this situation persists long enough, higher wages and stronger purchasing power will make consumers more able to afford current prices. Olena Nicks, an analyst and local councillor on Long Island, New York, is one such consumer tightening her purse strings in the face of high prices. Nicks says she has clearly felt the significant increases in supermarket grocery shelves and vacation airfare prices in recent years. The 34-year-old consumer says she has reduced her spending at restaurants and fast food outlets, and has opted to spend more affordable evenings at home instead of leisure activities like bowling with friends. "Frustration doesn't even begin to describe it," she says. "It feels like being trapped."

Conclusion

In summary, the United States is mired in its longest period of high inflation in nearly a century, with the CPI exceeding the 2% target level for 65 consecutive months. High prices are not only eroding people's purchasing power but also subtly altering consumer spending habits and inflation expectations. The solidification of inflation expectations is precisely the most difficult challenge for central banks to address. Federal Reserve officials have clearly expressed their vigilance, and interest rate hikes remain their primary tool for curbing inflation. In the short term, high borrowing costs will further burden consumers, but in the long term, curbing inflation is beneficial to the public. With the midterm elections approaching, public discontent with high prices is becoming a significant variable influencing the political landscape. Whether consumers can wait for wage growth to outpace price increases will be key to evaluating the effectiveness of this round of economic policies.