Author: Wall Street News
Official inflation data shows the situation is under control, but US consumer confidence has fallen to its lowest level in nearly half a century—this discrepancy is shaking the market's fundamental trust in macroeconomic data.
US June CPI data will be released tomorrow. Prior to this, the Consumer Price Index in May rose 4.2% year-on-year, and the Personal Consumption Expenditures Price Index (PCE) rose 3.4%. Official data presents a picture of "concerns, but no crisis."
However, the University of Michigan Consumer Sentiment Index hit a record low in May since records began in 1978, and the June reading was the second lowest in history—the fifty years covered by this index include the oil crisis, two stock market bubbles, one pandemic, and six recessions, yet Americans still regard the present as the worst economic period.
This contradiction is triggering deep reflection in the economics community.
Labor economist and independent policy advisor Kathryn Anne Edwards wrote in a Bloomberg column that the huge gap between official inflation indicators and the real experiences of the public stems from systematic flaws in the current measurement system—it uses an averaged "market basket" to conceal the vastly different inflation realities faced by different household groups. For investors who rely on this data for asset pricing and policy predictions, this means the core indicators they have long referenced may not accurately reflect the true pressures in the economy.
One Number Hides Millions of Inflation Experiences
The US Bureau of Labor Statistics (BLS) tracks price changes for approximately 100,000 goods and services each month and weights them through consumer expenditure surveys to generate the CPI, which reflects the purchasing behavior of a "typical consumer."
Currently, the BLS only maintains three consumption baskets: All Consumers, All Urban Consumers, and Urban Wage Earners and Clerical Workers.
Edwards points out that the fundamental limitation of this framework is that it compresses highly heterogeneous consumer groups into a single average.
Research by the BLS itself has proven that such differences cannot be ignored: a study covering 2006 to 2023 shows that the average annual inflation rate for the lowest income quintile households was about 0.28 percentage points higher than for the highest income quintile, with a cumulative gap of 7.7 percentage points.
In other words, over the past two decades, the poor have actually borne far greater inflationary pressure than the rich, and this gap is almost invisible in the standard CPI.
The impact of this "averaging" on the market is substantive. When investors and policymakers judge monetary policy directions based on the overall CPI, what they see is a statistic that has been smoothed, not the true distribution of pressure within the economy.
The Data Foundation is Ready, What's Lacking is Policy Will
Edwards' core argument is not to overturn the existing system, but to point out that the technical threshold for expanding measurement dimensions is extremely low.
The BLS has already done the heaviest lifting—collecting price change data for 100,000 goods and services every month. On this basis, constructing more segmented indices by household type (single, married without children, married with minor children, etc.), income level, renter or homeowner, age, and other dimensions is essentially just a matter of re-weighting and presenting the same set of raw data in different ways.
The BLS already has several precedents: a CPI for the elderly, a CPI for new tenants, a CPI excluding product specification changes, and a research series on CPI by income quintile.
These series are released less frequently than the monthly CPI, but they prove the feasibility of the technical path. Edwards suggests that the existing three baskets should be expanded by at least tenfold, with monthly data provided for each typical household type, while increasing the BLS research staff and expanding the consumer expenditure survey sample size.
Beyond Data Distortion, Real Economic Pressures Cannot Be Ignored
Edwards makes it clear that improving the measurement system will not solve the problems of the economy itself.
She enumerates the multiple pressures currently facing the US economy: slowing hiring, stagnant wage growth, persistently high prices, rising credit card debt, high interest rates suppressing housing market vitality, and the potential impact of artificial intelligence on the job market.
These structural pressures collectively explain why there is such a deep chasm between consumer sentiment and official data. In Edwards' view, the correct path to bridge this contradiction is not to ask the public to trust the existing data more, but to make the data system more accurately reflect the living realities of different groups.
For market participants, the significance of this discussion is: as tomorrow's CPI data approaches, investors may need to re-examine to what extent a single aggregate indicator can accurately capture the true inflationary pressures and divergences in consumer behavior in the current economic cycle—and such divergence is precisely the key variable for understanding the Fed's policy path and risks on the consumer side.
