Google searches for inflation have plunged - and that could mean rising prices aren't a big problem anymore, Nobel economist Paul Krugman says

• Google searches for inflation have plunged in the US, signaling Americans are less worried about it.
• Inflation is driven by inflation expectations, as workers demand higher wages, pushing up prices.

Americans are running internet searches for "inflation" far less often than a year ago. That could mean rising prices no longer pose a serious threat to the US, Paul Krugman has said.

"One key point: inflation becomes a much less urgent problem once it drops below the threshold at which people notice it all the time," he tweeted on Saturday.

The Nobel Prize-winning economist attached a screenshot from a Financial Times article, which made the point that once inflation hits 3% to 4%, it exits the public consciousness. Inflation at that rate is no more damaging than at the Federal Reserve's 2% target, but reducing it further tends to cause significant damage in terms of job and income losses, the article noted.

Inflation is fueled by inflation expectations, as workers demand higher wages in anticipation of prices rising, which drives employers to raise prices to afford to pay higher salaries, which results in inflation. The upshot can be a wage-price spiral that makes inflation a self-fulfilling prophecy, and leads to it becoming entrenched in the economy.

Krugman's argument seems to be that once inflation drops to about 3% to 4% and isn't on everyone's minds, employees won't preemptively ask for bigger salaries to weather rising prices, so prices won't increase as fast.

"The US has now dropped below that threshold," he tweeted. "Google searches for 'inflation" over time," he continued, describing a chart showing that searches for inflation spiked last year but have now declined to 2021 levels.

US inflation has slowed from above 9% at its peak last summer to 4% in May. A key factor has been the Federal Reserve hiking interest rates from almost zero to upwards of 5% since last spring.

The Fed skipped a hike last month, fanning investors' hopes that it might end its campaign soon. Higher rates increase borrowing costs and encourage saving over spending, which can ease the pace of price increases but can also pull down asset prices and drag the economy into recession. Moreover, higher rates have heaped pressure on the banking and commercial real estate industries in recent months.

Krugman's tweet suggests he believes the Fed's job is done now that people are searching for "inflation" online a lot less. Trying to cool price growth any further will have minimal benefits, but cause a lot of pain for the people who suffer pay cuts or lose their jobs as a result, appears to be his view.

The economist has recently sounded bullish on the US economy, touting cooling inflation and a robust labor market as good news for the nation. He also said he doesn't see any signs of a recession, and suggested the US central bank may have won its war against inflation without tanking the economy.