Here’s a harsh reality: inflation isn’t going back to the way it was, and that’s leaving a lot of people frustrated. But here’s where it gets controversial—while the Federal Reserve targets a 2% inflation rate, historical data shows the average has been closer to 3.5% over the past 75 years. So, which number should we aim for, and what’s more likely in the future? Let’s break it down.
A reader recently asked about the ideal inflation target and what to expect going forward. To understand this, let’s look at the numbers. Since 1950, inflation has averaged 3.5%, but it hasn’t been a smooth ride. There’s been a wide range of highs and lows, as the chart clearly shows. For instance, the 2010s saw inflation well below average, largely due to the lingering effects of the Great Financial Crisis. This is one reason why the spike in inflation during the 2020s has felt so jarring.
And this is the part most people miss—in 2022, inflation hit 9%, but unlike previous spikes, it didn’t trigger a recession. This is unprecedented, and it’s one of the reasons inflation has remained stubbornly high this decade. While avoiding a recession is good news, it hasn’t eased the pain of rising prices. People are annoyed—and for good reason.
A Politico survey reveals that nearly half of Americans feel the cost of living is worse than ever. Gallup’s decades-long polling confirms this: since 2022, inflation has topped the list of financial concerns. It’s not just about the rate of change; it’s the cumulative effect. The Consumer Price Index has risen about 26% in the 2020s, which is why a $16 meal at Applebee’s now costs $20, and the average new car price has hit $50,000.
While wages have generally kept pace with inflation, the sticker shock remains. And predicting inflation? Nobody’s great at it—not even the experts. The Fed struggled to boost inflation in the 2010s, only for it to soar during the pandemic. So, what’s next? Should we expect 2%, 3%, or something else entirely?
Here’s a bold take: 3% might be the new normal, and there’s not much the Fed can do about it. Over a decade, the difference between 2% and 3% inflation compounds significantly—22% vs. 34%. Could AI drive deflation? Might a recession slow inflation? Or will another unexpected event shift the economic landscape? For now, higher prices are here to stay.
If you’re frustrated by rising costs, prepare for the long haul. We’re unlikely to return to pre-2020 price levels. But here’s a question to ponder: Is 3% inflation really unsustainable, or have we simply adjusted our expectations? Let us know your thoughts in the comments—this is a debate worth having.
