Why Affordability and the Vibecession Are Real Economic Problems

Even as real median household incomes surpass pre-pandemic levels, consumer sentiment remains near historic lows—comparable to the depths of the Great Recession. This disconnect fuels debates about a "vibecession," but new analysis reveals concrete mechanisms through which recent inflation creates lasting affordability crises, particularly for essentials like housing, food, and healthcare.

The Essentials Squeeze

Prices for necessities have surged disproportionately since 2019. While overall consumer prices rose 26.1%, core essentials like groceries and shelter jumped even higher. Transportation and healthcare costs followed similar trajectories. Households now devote larger budget shares to these categories, especially at lower income levels. As spending on essentials grows, discretionary spending shrinks—reducing welfare even when total income keeps pace with inflation.

This effect intensifies for lower-income households. They disproportionately rely on generic food brands and basic goods, which experienced sharper price hikes ("cheapflation"). Combined with volatile work hours and frequent budget overruns, these families absorb inflation's impact more acutely.

Three Hidden Inflation Penalties

1. The Housing Tilt Problem
   Fixed-rate mortgages become artifacts of economic distortion during inflation. Higher nominal interest rates front-load real payments, straining first-time buyers who must qualify based on today’s inflated costs despite future real payment declines. This mechanism locks many out of homeownership even with rising wages.

2. Planning Under Uncertainty
   Volatile prices impose cognitive burdens. Surveys show 85% of consumers cite inflation-induced decision fatigue—constant recalibrations of when to buy, what to delay, and how to interpret price changes—as a major welfare drain.

3. Borrowing Costs as Living Costs
   Official inflation metrics exclude interest expenses, yet households feel soaring mortgage and auto loan rates as direct cost-of-living increases. Incorporating borrowing costs explains much of the gap between sentiment and traditional economic indicators.

Policy Pathways

These aren't theoretical concerns but solvable problems:

• Housing: Relax zoning, subsidize first-time buyers
• Healthcare: Reinforce Medicaid, negotiate drug prices
• Food: Avoid tariffs that inflate basics (e.g., proposed banana tariffs)
• Wage Friction: Reduce job-switching costs during inflationary periods

Ignoring affordability as "money illusion" misses how inflation reshapes economic access. The data shows real welfare losses concentrated where they hurt most—in the kitchens, clinics, and driveways of everyday life. Policy must target these pressure points to bridge the gap between economic metrics and lived experience.

For methodology and custom price indices, see the original analysis.