Definitively inflated. Whenever I visit the US, I notice how everything except food is overpriced. The taxes are insane, you need lawyers and tax accountants for every cough you make and the quality of life is hardly the same as in Europe or Asia. If anyone's got any catching up to do, it's the US. No offense - I like the country (visiting), but it's just unreasonably expensive. How can anyone choose to live there is beyond me. Right now it's the opposite of freedom, unless you're insanely rich - then you can feel comfortable.
I assume you visited outside of major cities and compared like for like? The US is not expensive.
Even in rural areas, most services will cost you more than basically all European countries (except for Scandinavia). Taxes tend to be higher in Europe but cost of living quite a bit lower.
Doesn't that difference in taxes make up the offset?
Also, there are extremely expensive European cities, London and Paris come to mind. Even basic necessities, like food, was far more expensive than I was expecting in Paris.
"Catching up" by decreasing salaries because you like to underpay your workers, as you basically implied in the original post? That's a bold statement.