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How to Adjust Your Brain for 8.5% Inflation

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
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Inflation turns money into a foreign language. 

The rising cost of gas, food and hundreds of other things is pushing Americans to rethink how they read every price tag. Whether in the produce aisle or the used-car lot, our definition of cheap or expensive has changed, researchers on consumer psychology say.


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Americans trimmed spending and adjusted their monthly budgets as the annual inflation rate rose to a four-decade high of 8.5% in March, the Bureau of Labor Statistics said Tuesday. Financial advisers say this recalibration can’t be a one-time effort. Knowing exactly what you are willing to pay for something and examining what is a necessity should be a constant effort.

“There’s no going back to the way things were,” said Scott Rick, associate professor of marketing at the University of Michigan, who studies financial decision making. “You have to update and roll with it.” 

The sudden inability to know how to read price tags is especially disorienting to those under age 40, who have never experienced anything like today’s inflation rate. Understanding how we think about prices can help us adapt to inflation, Mr. Rick said.

What we judge to be a good, or fair, price is influenced by our individual background, income and our mental transaction histories, Mr. Rick said. The prices we pay over and over again like gas or rent are better defined than more occasional purchases, which is why politicians so often trip up when asked to recall the price of a gallon of milk, or older people are still anchored to the prices they paid in younger days.

Inflation moves faster than our mind is sometimes willing to adapt. 

Our understanding of price tags is disproportionately shaped by the items that make up our daily budget. Researchers found that when it comes to gauging inflation expectations, shoppers typically look at the usual items they buy. This small number of items are the ones we use as “mental benchmarks,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. This process is known as anchoring. 

For some people, that benchmark might be the price at the gas pump or how much they pay for a dozen eggs. Others find themselves adjusting their understanding of prices when they spot a price change in their monthly utility bill or their usual coffee order, “and they totally extrapolate that to the economy at large,” Mr. Wessel said. 

Ida Byrd-Hill, a 55-year-old founder and chief executive officer of a cybersecurity reskilling firm in Detroit, said she has noticed price creeps affecting the usual latitude she affords herself in her everyday budget. She said she considered her Netflix subscription her individual inflation marker. When the price increased by $5, she had to make a difficult decision and cut the expense. 

“I look at my budget, and I budget to the penny,” she said. “I’m eagle-eyed to price changes because I have that budget.” 

With prices so fluid, Mr. Wessel recommends people research prices online or talk to friends and peers about what they’ve been paying for a certain item. 

The legwork “really pays off for big-ticket items,” Mr. Wessel said. Without doing this work, people are more likely to accept the first price that comes along, he said.

Farrell Goldman, a 45-year-old enforcement supervisor in New York, said he used to consider $1,800 for rent a very reasonable price to pay. Now that he is looking to move for the first time in years, he has noticed rents have skyrocketed. He might have once recoiled at the priciness of some of the places he’s browsing, but he said now he’s trying to accept that these higher rents are here to stay, and his $1,800 benchmark is no longer the norm. 

“No one likes reaching into their pocket for more money, but now, I’d be willing to do it,” he said. 

Our once-stable vocabulary of “cheap” and “expensive” has probably changed for good, and we need to learn to speak this new language, Mr. Rick said. 

“It’s like getting over a breakup,” he said. “Shake off these memories as best you can and readjust your eyes.”

Write to Julia Carpenter at julia.carpenter@wsj.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting