tl;dr - Grocery prices.

Emphasis mine. And I created shorter paragraphs.

The English-Muffin Problem

A simple explanation for economic discontent

The economy is hot, but the people are bothered. Americans think the country is in dreadful economic shape despite strong wage growth, low unemployment, and steadily declining inflation. We know this from survey after survey. What we don’t really know is how people formed those judgments. To find out, The Atlantic commissioned a new poll.

When the results came in, one finding jumped off the screen: Americans are really, really unhappy about grocery prices.

Working with Leger, a North American polling firm, we asked 1,005 Americans how they felt about the economy. As with other recent polls, this one painted a gloomy picture. Only 20 percent of people said that the economy has gotten better over the past year, compared with the 44 percent who said it has gotten worse. There was a big partisan split, but even among self-identified Democrats, only 33 percent said the economy has improved.

Then we asked them to choose, from a long list, what factors they consider when deciding how the national economy is doing. The runaway winner was “The price of groceries for your home”: Twenty-nine percent of people picked it as their top choice, and 60 percent of people selected grocery prices among their top three. Other than “inflation” itself, nothing else came close—not gas, not housing, not interest rates, not the cost of major purchases.

And when we asked what people had in mind when they reported that their personal finances were getting worse, 81 percent chose groceries.

Americans’ economic attitudes used to track official statistics, including the inflation rate, pretty closely. That changed in 2020. When the pandemic hit, both the indicators and sentiment plummeted. But then, even as the economy recovered, sentiment remained low. Something broke the relationship between metrics and perception during the pandemic, and housing struck me as the likely culprit.

Home prices, which are not included in the consumer price index, have gone absolutely bananas since 2020, rising far more than overall inflation in that time period. But although the cost of housing may dominate the psyche of people like me—Millennial professionals who rent apartments in super-expensive cities such as Washington, D.C., and wonder whether we can ever afford to buy a house—nearly two-thirds of American households already own their homes, and a spike in prices makes them wealthier.

“For a large share of households, the increased cost of housing prices is an increase in equity in their homes,” Betsey Stevenson, an economist at the University of Michigan, told me. “They’re not really complaining that the value of their house has gone up.” Housing costs are a real pain, but only for some people. The poll cast doubt on a few other popular hypotheses.

On the left, one argument posits that Americans are unhappy because they miss the generous government welfare payments enacted during the pandemic, such as the stimulus checks and the expanded child tax credit. But only 17 percent of our poll respondents said their finances were better during the pandemic. (Fifty-five percent said they were doing better before the pandemic, and 28 percent said they’re doing better now.)

People with children at home were generally more positive on the economy than people without kids. That isn’t what you’d expect if Americans were fuming over the expiration of the expanded child tax credit. What about the contagious power of negative vibes on social media? This is very hard to test, because people might not be good judges of what shapes their worldview.

But, for what it’s worth, we asked where people get their news on the economy, and those who chose Facebook, Instagram, or TikTok expressed more positive views than people who didn’t. So, too, did those who say they read national and financial newspapers. The most negative sentiment was generally among older people, not Gen Z TikTokers, which is consistent with other surveys. No single poll is definitive, and you can get answers only to questions you think to ask.

We didn’t ask about restaurant prices, for example, or the cost of child care. What’s clear is that the biggest cause of America’s current economic discontent is the fact that prices are higher than they were before the pandemic. And groceries are, at the very least, one of the things that people are most upset about. Grocery prices increased by 11.8 percent in 2022, far ahead of the overall rate of inflation, which was 6.5 percent.

And unlike with housing, few ordinary Americans benefit from higher grocery prices. Everyone buys groceries, but unless your last name is Kroger or Walton, you probably don’t sell them. Knowing that grocery prices drive negativity doesn’t, on its face, solve the puzzle of why sentiment has diverged from the economic indicators. Most Americans are making more money, even adjusting for inflation, than they were before the pandemic.

If they were coldly rational, they would recognize that their income more than offsets higher grocery prices—they’re spending more, but they still have more left over. Or maybe it isn’t much of a puzzle at all. We haven’t seen inflation like this since the 1980s; food prices in particular haven’t risen so fast since the late '70s.

The models, in other words, have been trained on four decades of low inflation. Asking them to accurately predict what happens when prices finally, suddenly jump doesn’t make a lot of sense. “Collectively, there’s still this coming to grips with the idea that we’re never going back to 2019,” Joanne Hsu, the director of consumer surveys at the University of Michigan, told me.

“We’re in a new normal now, and we’re still adjusting to what that new normal feels like.” In this unfamiliar post-inflationary territory, people seem to care more about how much things cost than about how much money they have, even if economists insist that those things are symmetrically important. I should confess that I’m among the many Americans who experience prices as an atmospheric economic condition and income as something I earn.

Early in the pandemic, I got in the habit of making an egg-and-cheese sandwich for breakfast pretty much every day. I recall a six-pack of Thomas English muffins costing about $3.50 at the time. Today, one costs $5.59 at my nearest Wegman’s and $5.29 at the nearest Safeway and Harris Teeter.

An economist would probably say I shouldn’t worry about it. After all, since the start of the pandemic, I have changed jobs twice, and my income has risen more than enough to easily cover the extra $2 a week on English muffins. Still, I can’t bring myself to buy them. My higher income feels like something I accomplished through hard work and patience, but the higher price of English muffins just feels wrong.

I settle for cheaper, inferior brands while waiting in vain for Thomas to go back under $5. (Or I grab them when I’m at Target, where for some reason they’re still only $3.49.) Unlike most poll respondents, I don’t conclude from this that the economy is bad. On the very specific dimension of egg sandwiches, however, I suppose I do feel worse off. But perhaps not for long.

Grocery prices seem to have finally stopped rising faster than the overall rate of inflation. In fact, according to the most recent government data, they have basically flattened out, increasing by only 0.1 percent in October. The bad news is that, once prices hit a certain level, they tend to stay there. According to Hsu, consumer sentiment has made up about half the ground it lost from the eve of the pandemic to its nadir in June 2022, when inflation was at its peak.

How quickly we close the rest of the gap may hinge on how long it takes Americans to stop pining for 2019 prices that are never coming back. Personally, I still can’t wrap my head around paying $5.29 for six English muffins. Ask me again in six months.