Economists focus on the slowing rate of inflation, but consumers are anchored to pre-COVID price levels. The fact that goods still cost significantly more is the primary driver of negative sentiment. This "anchoring effect" means that even with decelerating inflation, consumer frustration persists because their purchasing power feels permanently diminished.

Post-pandemic, companies have shifted from setting prices on a fixed schedule to "state-dependent pricing." They now adjust prices more frequently in direct response to rising costs, causing inflation to pass through to consumers more quickly and persistently.

Despite official CPI averaging under 2% from 2010-2020, the actual cost of major assets like homes and stocks exploded. This disconnect shows that government inflation data fails to reflect the reality of eroding purchasing power, which is a key driver of public frustration.

The recent inflation was not due to money printing, but a supply shock from lockdowns where prices surged far ahead of incomes. This created a permanent "phase shift," reducing purchasing power for the majority of people and preventing a true economic recovery as incomes never caught up.

Pessimism on inflation is warranted because common analysis misses key factors. Household inflation expectations are becoming unanchored, the overall economy is tight based on the output gap (not just unemployment), and the "new normal" is a state of recurring supply shocks, not a return to pre-shock stability.

Prices jumped 25-30% post-COVID and never fell, creating a permanent 'phase shift.' This allows companies to report higher nominal revenues without selling more goods, enabling them to reduce headcount. The result is record stock prices coexisting with abysmal job growth and 50-year lows in labor participation.

History suggests that if inflation remains high for too long, it can alter public psychology. Businesses may become less hesitant to raise prices, and consumers may grow more accepting of them. This shift can create a self-perpetuating feedback loop, or 'snowball' effect, making inflation much harder for the central bank to control.

Official inflation metrics may be low, but public perception remains negative because wages haven't kept pace with the *cumulative* price increases since the pandemic. Consumers feel a "permanent price increase" on essential goods like groceries, making them feel poorer even if the rate of new inflation has slowed.

Policymakers have transitioned from a world where 2% inflation was a ceiling to one where it's a floor. The primary battle is no longer preventing inflation from rising above 2%, but rather struggling to bring it down to 2%, which is now seen as the bottom of the acceptable range.