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Hi, Paul Krugman here. Different city, different country, still not home. Unfortunately, couldn’t manage to do this one in a cafe, but we have been sitting in cafes a fair bit.

I just want to weigh in on a really kind of alarming report on consumer confidence that came out today. This is the long-running University of Michigan survey of consumer sentiment. It is kind of time hallowed. I don’t know that it’s necessarily the gold standard — there are other surveys — but this is the one that people really do focus on most.

The numbers are terrible, people. We’re hitting a record low on consumer sentiment which fits in with the general picture. We know that people are very upset about prices; they’re very upset about economic management; they just don’t feel that there’s anyone making any sense who’s in charge of things; which is all true.

I mean we can argue that objectively things are not as bad as all that. We have consumer sentiment that’s worse than at the depths of the financial crisis. We have consumer sentiment that is worse than during the stagflation circa 1980. And it’s hard to say that that’s really justified. But OK, the customer is always right. If people are feeling this down then we need to take that seriously.

But that is actually not the big issue. The really big issue is inflation expectations.

Now why do we focus on that? Inflation for a short period of time is not good but it’s tolerable. If we have a year of elevated inflation — even if you do something stupid, if you impose tariffs and raise consumer prices, or you start a war and mishandle it and you drive up oil prices that is not good. But it only turns into a really, really serious problem if it gets “entrenched” in the economy.

That is usually the term that people at the Federal Reserve use. And what they mean is this. If you think about how wages and prices are set, think about the process of inflation. Not all prices are set at the same time. There’s a kind of a leapfrogging in which each individual company, each individual employer is setting prices based both on inflation in the past and on inflation that they expect in the future. They’re looking over their shoulders at what they think competitors are going to be charging. They’re looking over their shoulders at what they think is going to happen to their costs.

And they need to do that because for many prices, it’s impractical and costly and disruptive to change them too frequently. So you set prices for a year in advance, something like that. You set prices for a while, which means that a lot of what’s happening to prices now is determined by what people think is going to be happening to prices in the future.

We don’t have great measures of what’s in the minds of people who are setting prices, but we have pretty good, or at least consistent over time, measures of what consumers expect. And, you know, we’re all living in the same society. So that’s telling you something about where we are in terms of expected inflation.

If you have a spike in inflation, if inflation comes and goes, but it doesn’t get built into expectations of higher inflation for a long time, then okay, you ride through it. Maybe people vote the bums out, but you ride through it.

If it gets built into expectations, then it’s a much a much more difficult situation. Then you have to somehow wring those expectations of high inflation out of the economy because if you don’t, inflation will just feed on itself. Prices will rise because everybody expects prices to rise and those expectations will be confirmed and it just goes on.

So if you want to return to an acceptably low rate of inflation and if people are expecting a high rate of inflation, then while there may be other ways, no