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“Pain” was repeatedly used by Jerome Powell, the head of the Federal Reserve, in his much-anticipated annual speech from Jackson Hole, Wyoming, on Friday, August 25, 2022. Powell didn’t pull punches, sternly warning that the Fed will “forcefully” use all tools available to bring down inflation.
As stock markets plunged, Powell’s comments came as a rude awakening to the White House and to pundits on the left who had been celebrating a slight improvement in the Personal Consumption Expenditures inflation index as if it were the beginning of the end of soaring prices.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
See what I mean about “pain”?
This column is not intended to be a deep analysis of that pain or whether the Consumer Price Index adequately addresses the level of pain American consumers are currently feeling. The column’s objective is to show why my personal experience makes it appear that the official inflation numbers understate the inflationary reality.
Coca Cola Products
I’ll start with the picture at the top of this piece to illustrate how food prices have jumped by more than the CPI. While the index went up by 8.5% in July year to year, grocery prices soared 13.1% according to the Bureau of Labor Statistics. That’s the largest jump since 1979, and prices are still going up.
Let’s take Coca-Cola products as an example. I drink far too much soda, and I generally only buy it when it’s on sale. But, a couple of weeks ago, I was running out of Coke Zero and couldn’t find 12-packs on sale at Milam’s Market (a South Florida grocery chain). I decided to grab some anyway and suffered immediate sticker shock. The price was $9.39!
Thinking it was an aberration, I checked at a Publix supermarket a few days later. The price there was $8.18.
12-packs of Coca-Cola cans sell for $9.39 at a Publix supermarket Coral Gables, Fla., on Saturday, August 27, 2022.
I then checked prices in other cities. Jewel-Osco in Chicago, Albertsons in Los Angeles, and Kroger’s in Dallas all list the price online at $7.99. Unsurprisingly, Manhattan prices are in a different universe, with a Dagostino’s on the Upper East Side charging $11.99.
Of course, you can find lower prices at wholesale clubs, Targets, and Walmarts, but the point is to compare where prices are now and what they were before and during the first year of the pandemic, which here in South Florida were usually $5.99 (I failed in my attempts to get an exact history of prices from the media relations department at Publix).
In other words, Coke prices have soared by 36% in the last couple of years.
Coca-Cola admits that average selling prices increased by 12% just in the last quarter, after beginning to raise prices, like so many other companies, in the spring of 2021, to offset higher commodity costs.
Clearly, Coke products have gone up by a lot more than the CPI, as have most food products.
Energy Costs
So have energy costs. We all know about prices at the gas pump. The average gallon of regular gasoline was about $3.88 last week. When Joe Biden took power, they stood at about $2.38. That’s a 63% increase in 19 months, despite recent declines. The Biden administration, tone deaf as it often is in its messaging, is still trying to convince people that the recent drop in prices from all-time highs is giving Americans “breathing room.” Do they think people have no memory and don’t realize how prices are still far above what they're used to?
Electricity has been almost as bad. My last electric bill was the highest in the 14 years I’ve lived in my current house. Not by a little, but by a whopping 38%, even though fewer people live here than in the past. My electricity provider, Florida Power and Light, admits customers saw about an 18% increase in their monthly bills from 2021 to 2022, a jump that easily exceeds the inflation rate.
No wonder that the National Energy Assistance Directors Association reported last week that a record 20 million Americans are behind on their power bills and face shutoffs.
“I expect a tsunami of shutoffs,” Jean Su, a senior attorney at the non-profit Center for Biological Diversity, which tracks the power industry, told Bloomberg a few days ago. And good luck this winter, as natural gas prices used for heating hit levels in July that they hadn’t reached since 2008.
Household Services and Other Costs
Returning to my personal experiences, I was first prompted me to write this column by what I had to pay to fix an automatic gate at my house, for a visit from the plumber, and for the repair of an air-conditioning unit (the latter was worsened by the soaring cost of Freon). In all those cases the fees were 20% or more than I’d paid for prior visits.
While the CPI includes a series of representative services, my layman’s view is that the index is understating the extent of those increases. All household maintenance costs have soared.
And I own my house, which has spared me from one of the worst inflationary problems: rent. Despite the new “housing recession,” rents have kept soaring, prompting The Atlantic to publish an article titled, “Why the Rent Inflation Is So Damn High.” I live in the country’s rent-increase epicenter, Miami, where Realtor.com said this spring that rents had spiked by 58% during the two years of the pandemic, more than anywhere else.
In Conclusion
For a realistic sense of why we are paying so much more for almost everything, it’s important to remember that we are now in an environment of compounding high inflation. The CPI only started spiking in the summer of 2021, and current inflation needs to be added to last year’s rising inflation to get a better picture of the rising costs.
Monthly 12-month inflation rate in the United States from January 2020 to July 2022. Courtesy: Statista.
The 8.5% year-to-year jump in the CPI in July of 2022 has to be added to the 5.4% reported for July, 2021. So, for example, an average item that cost $10 in the summer of 2020, would now cost $11.44, an increase of 14.4% in two years.
No wonder salary increases aren’t keeping up with price hikes.
Also, inflation is hitting hardest in ways that cause pain to most Americans. Approximately 88% of U.S. households use air conditioning, according to the 2020 Residential Energy Consumption Survey. A 2018 Gallup survey found 83% of U.S. adults drive frequently. And, while soda consumption has come down in recent years, a study found that 60.7 percent of children and 50 percent of adults drank a sugary beverage on any given day in 2014.
All of this means that food and energy taking an especially big bite out of the finances of low-income and middle-class people. So, when the Fed chairman mentioned “pain,” most Americans knew too well what he was talking about.
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Cover photo: 12-packs of Coca-Cola cans sell for $9.39 at the Milam's Market in Coconut Grove, Fla., on August 16, 2022.