The Grocery Receipt Tells a Different Story Than the Inflation Report

Prices are cooling in the data, and the public is more worried than ever. The contradiction dissolves the moment you stop treating inflation as one thing.

Right now, in 2025 and into 2026, the price pressure people feel most is back where the whole episode started: food and energy, with goods alongside. The cause this time is geopolitical rather than pandemic logistics. Tariffs have added up to 0.7 percentage points to goods prices over the past year and a half. The war involving Iran has pushed energy costs up, since roughly 20 percent of the world's oil moves through the Strait of Hormuz, which has been under blockade for several months. And because somewhere between a quarter and a third of globally traded fertilizer passes through that same strait, food prices have climbed too.

These are the prices households meet weekly and sometimes daily, at the pump and the checkout, which is why this latest pressure lands so hard on the public mood. And that brings up a puzzle worth sitting with.

The puzzle: better data, worse mood

The University of Michigan's measure of how Americans feel about the economy recently fell to its lowest reading on record. Not simply low. The lowest ever. And it happened while inflation was easing from its peak and while the job market was rebalancing and even softening a little. Ask people what worries them, and they do not say unemployment. They say prices.

“Despite inflation coming down and the labor market rebalancing and weakening some, people are still more worried about inflation than they are worried about the labor market and jobs at this point.”

On the face of it, that reaction looks irrational. It is not. It is an accurate memory of an experience that arrived in stages, and to see why, you have to rewind through how this inflation actually unfolded.

Rewind: one label, four different engines

The mistake is to think of inflation as a single phenomenon with a single cause. Over the past several years, it has been nothing of the kind. It came in waves, four by my count, and each one ran on a different engine.

It opened, right after the reopening, in food and energy, the same categories driving the current wave. Then, as the supply chain snarls of that period worked through the system, the action moved to core goods: the stretch of jammed ports, missing semiconductors, and durable goods that had become shockingly expensive. The part that is easy to forget is how completely that wave reversed. Across 2023 and 2024, core goods inflation did not merely fall to zero; it went negative, and that negative reading became a quiet brake on the overall number, holding it down while pressure lingered elsewhere.

Where it lingered was the third wave: services and housing. As spending rotated back from goods toward services, service prices rose with demand. At the same time the pandemic moved families toward the suburbs, lifting housing demand while construction stalled on shortages of materials and labor. The contrast with goods is the whole point. Goods inflation peaked in 2022 and faded fast. Services and housing peaked later, in early 2023, and have come down only at a crawl. They remain elevated today. Goods were the quick wave; services are the stubborn one. And then, in 2025, the cycle circled back to food and energy, which is where this piece began.

Why the mix matters more than the number

Set the four waves next to each other and one thing jumps out. Food and energy in the first and fourth waves were driven by one set of forces; core goods in the second by another entirely; services and housing in the third by something different again. Four waves, four engines, one shared label. So the bare sentence that inflation is high turns out to tell you almost nothing on its own. What you actually need to know is narrower: which categories are climbing, which are falling, and what is pushing each one.

It is also where the wave lens does its most useful work for someone who studies the job market, because it separates two things a single number jams together: goods and services. They keep different time. Goods prices react fast to supply chains, freight, and inventory, which is how core goods could swing from lead driver to negative drag in a short span. Services inflation is anchored in wages and housing, so it is stickier and turns slowly. Average the two into one figure and you can easily miss that goods are dropping while services hold firm. Services are the side wired most directly to employment, because wages feed straight into what services cost. That wiring is why I decline to file inflation and the labor market under separate headings. Pull on one and the other moves.

Memory runs slower than the math

Which returns us to the puzzle. Sentiment does not update in real time. By the point core goods had gone negative and was tugging the aggregate down, the public still carried the memory of dear cars, appliances, and grocery runs. People feel the accumulated level of prices, the plain fact that life costs more than it did a few years ago, even as the rate of increase slows. The data measure the speed; households remember the climb.

That gap is not trivial for policymakers, because sentiment feeds back into behavior. When households brace for further increases, they change how they spend, save, and bargain over pay, and expectations that slip their anchor can keep inflation going long after the original supply shock has passed. It is why the public's turn toward prices, and away from jobs, is worth watching closely even in stretches when the headline looks calm.

The throughline across all four waves is humility about diagnosis. Each phase wore its own face. Food and energy gave way to core goods; core goods reversed into disinflation, then came back; services pressures showed up with their own sources and overstayed their welcome. Anyone who crowned a single one of these the definitive cause of inflation would have been overtaken by the next wave within months. Reading the economy today means asking, again, where the pressure truly starts in this wave, rather than assuming the last wave's suspects are still on the scene. When the public fixates on prices, that is not noise; it is a faithful report of what daily life feels like. Honoring that signal means refusing to stop at the headline figure and instead asking what the underlying composition is doing.

Adriana Kugler, Ph.D., Labor Economist & Georgetown Professor