How high inflation became a 'fact of life' in the U.S.

Currently, U.S. consumers are navigating one of the most extended periods of elevated inflation seen in the past century. An increasing number are beginning to accept these high prices as the new norm, a situation that is raising serious concerns among Federal Reserve officials regarding the risk of entrenched inflationary expectations.

The latest consumer price index (CPI) data, released on Wednesday, indicated a year-over-year increase of 3.7% for September. This marks approximately 65 months—over five years—of consecutive annual CPI readings surpassing the 2% benchmark, which is widely considered the target for inflation in the U.S.

This prolonged period of high inflation has significantly influenced the economic outlook of everyday Americans, potentially affecting everything from their budgeting strategies to their voting decisions in the upcoming midterm elections. Federal Reserve leaders are apprehensive that consumers' inflationary expectations may be becoming too deeply rooted to reverse.

"They're beginning to accept high inflation as merely a fact of life," noted Cleveland Fed President Beth Hammack in a recent social media post. "This is a concerning trend."

Inflation by the numbers

The current trend of persistent inflation is now recognized as one of the most enduring in modern U.S. history.

The ongoing series of monthly CPI readings above 2% is the longest such streak in the 21st century, according to a CNBC analysis of Bureau of Labor Statistics data. Historically, only two prior episodes since the late 1940s have shown longer durations of such inflationary behaviors.

Since inflation began to exceed 2% in early 2021, the average CPI reading has hovered around 4.5%. Such a sustained average reading has not been seen since the late 1980s.

Consumers are bracing for continued inflationary pressures, as evidenced by the one-year inflation outlook in September, which rose by three-tenths of a percentage point to 3.9%, marking the highest prediction over the past three years, according to the New York Fed's Survey of Consumer Expectations released last week.

How consumers respond

A primary concern for central bankers is that both businesses and consumers may start to alter their behaviors permanently in response to high prices, potentially leading to broader economic ramifications.

Businesses anticipating ongoing rising costs may proactively increase their prices for consumers. In turn, workers facing persistent inflation will likely demand larger pay raises to counteract future price increases.

These dynamics can create a self-fulfilling prophecy of inflation, diminishing the effectiveness of the Fed's monetary policy tools aimed at curbing price growth.

"Inflation expectations must be anchored for monetary policy to have a meaningful and predictable effect on the economy," asserted Gary Richardson, an economist and former Fed historian. "This must be the primary objective of any central bank."

At this stage, Fed officials are diligently observing how consumers react to inflationary pressures.

During a recent event, Minneapolis Fed President Neel Kashkari reported that a labor union leader expressed that inflation was "worse" for their members than a recession. This discussion has influenced Kashkari's perspective on the trade-offs inherent in the Fed's dual mandate, which aims for price stabilization and maximum employment.

At a recent economists' gathering in Ohio, Hammack conveyed that she does not take the stability of long-term inflation expectations for granted. With each consecutive month of high inflation readings, she cautioned that the risk of an "inflationary mindset" becoming deeply embedded increases.

Economists generally agree that interest rate hikes represent the Fed's primary strategy for moderating demand and consequently applying downward pressure on annual price growth. Following a recent interest rate increase in September, Fed funds futures traders are anticipating further hikes in December and into 2027.

Diane Swonk, chief economist at consultancy KPMG, noted that while interest rate increases can ultimately benefit consumers by stabilizing inflation, the near-term effects may lead to heightened pressure related to rising borrowing costs.

"Inflation is akin to cancer; if left to metastasize, the repercussions become increasingly severe," Swonk commented. "Even when the remedy is painful, it is preferable to allowing the condition to worsen."

Unhappy shoppers

In her district, Hammack has observed through social media interactions that residents are making choices rather than merely downgrading their purchases. She cited examples where consumers are forced to weigh the decision between paying for groceries or settling essential bills.

Consumers have expressed dissatisfaction regarding the cumulative price hikes that have marked their everyday experiences amid years of sustained inflation. This frustration is exacerbated by the reality that year-over-year inflation has outpaced wage growth recently, resulting in a decline in the average consumer's purchasing power.

Earlier this year, the University of Michigan's consumer sentiment survey plummeted to unprecedented lows. Notably, the proportion of respondents citing high prices as a factor in their worsened personal financial situations surpassed 50% for the first time on record in 2026.

High prices, stated Joanne Hsu, director of Michigan's survey, are "dominating consumer thinking." Many still regard this situation as an intolerable fact of life.

Compared to Democrats, consumer sentiment has markedly decreased among Republicans and independents this year. There are now concerns about whether discontent regarding rising living costs could influence electoral outcomes in the midterm elections.

While economists acknowledge these bleak outlooks, they advise that everyday Americans should not anticipate a significant reduction in prices. The potential for deflation—where annual price growth falls below 0%—could plunge the national economy into a downward trajectory.

Instead, optimism should be directed toward the hope that the inflation rate over the next 12 months can diminish to levels that fall below the pace of wage growth. If such a scenario unfolds over an extended period, enhanced wages and purchasing power would better equip consumers to navigate current price levels.

Olena Nicks, an analyst and local lawmaker from Long Island, New York, exemplifies a consumer tightening her budget in response to soaring prices. Nicks has specifically noted significant price increases in grocery store produce sections and airline ticket costs for vacations.

As a consequence, the 34-year-old has reduced her spending on meals at restaurants and fast-food outlets. Her social circle has likewise opted to forgo leisure activities like bowling, choosing instead to engage in more affordable gatherings held at home.

"Frustrated is an understatement," Nicks expressed. "It feels as though you are trapped."