Inflation: Understanding the Thing That Everyone Hates

This Week's Quote:

“When you have a dream, you've got to grab it and never let go”

                                  -Carol Burnett

As we all know, inflation has been in the headlines for quite some time. Nonetheless, most people only know that the cost of things have gone up but not the specifics on how much inflation is truly affecting them. Products vary in how much more expensive they’ve gotten, and some have actually gone down in price. Luckily, the Wall Street Journal has your back with this article that details what items have been affected by inflation and how, in turn, it affects you.
 
-Zak Kitzmiller

What Is the True Cost of Inflation? It’s Complicated.

Inflation just hit a four-decade high. Mining more than 100,000 data points from the consumer-price index reveals some nuance. A guide to what’s up—and what’s next.

Gas, groceries and housing. The three areas where Americans spend the most are significantly more expensive than they were a year ago.

Inflation is at its highest level in more than four decades after rising to 9.1% in June, which means the majority of Americans are experiencing the first serious, sustained rise in prices of their adult lives. It’s eating into paychecks, savings and sense of stability.

To see the particulars of what rising inflation means for budgets and daily spending decisions, it pays to drill down into the numbers. To make this easier, The Wall Street Journal created an inflation tracker to explore more than 100,000 data points the Bureau of Labor Statistics collects each month on the price of everything from toys to trucks and how each has changed over time.

Sticker shock is widespread. But not everything is going up, and there are still bargains to be had. Smartphones and TVs, for example, are much cheaper than they were a year ago, and the price of gas has cooled in recent weeks. Some predict other prices will drop as the Federal Reserve raises interest rates and inventories tick higher.

Current Inflation Rate: Consumer prices rose 9.06% in June 2022 from a year before

Prices rose the fastest forfuel oil, a change of98.53%from prices a year ago this month.Smartphoneshad the largest drop, falling20.03%

Energy’s aftershocks

Start with energy, where Americans are getting pinched at the moment. Yet another spike in the cost of gasoline and household utility bills last month sent consumer energy prices 41.6% higher than June of last year, an index that includes gasoline, fuel oil, electricity, and natural gas. This was the biggest jump since 1980, when the U.S. economy was reeling from an oil shock following the Iranian Revolution.

Prices for gasoline alone rose 11.2% in June from the previous month, due in part to high crude prices and shortage of refinery capacity. Natural gas for home use rose 8.2% on the month, while electricity increased 1.7%, as the Ukraine war roiled natural gas supplies and summer air-conditioning use swelled.

A surge in energy prices can ripple throughout the economy, economists say, impacting everything from industrial production to shipping. It affects the gasoline it takes to truck tomatoes to the grocery store, the petroleum used to create the plastic that keeps those tomatoes fresh and the natural gas used to make the fertilizer in which the crops were grown.

Low- and middle-income families are most vulnerable to these fluctuations, according to an analysis of Bureau of Labor Statistics June data conducted by the National Energy Assistance Directors Association.

Lower-income households making about $26,400 on average are on track this year to spend 25.7% of their income on gas and home energy bills, up from the 20.3% that group spent in 2020. For middle-income households making an average of about $65,700, those expenses are on track to account for 12.3% of their income, up from 9.5% in 2020. The highest income group—with average earnings of about $241,300—will spend 4.7% of their income on such costs, compared with 3.7% two years ago.

The price of oil has fallen in recent weeks, sending the average price of a gallon of gasoline to $4.58, according to AAA. These drops weren’t reflected in June government statistics about inflation. That shift could have broader implications if prices continue to drop.

What else is going up?

The soaring cost of energy affects groceries as costs rise to transport food, store it and keep it fresh. The war in Ukraine also tightened supplies around the world, adding more pressure to prices.

Consider what happened to milk. The price of dairy products soared 13.5% in the past year asmilk production declined. Some analysts say this happened because dairy farmers concerned about the costs of transportation took quick profits by slaughtering cows instead of shipping them to other farms where they could be milked for years.

“We have 100,000 fewer cows in the milking herd this year versus last year,” said Phil Plourd, president of Blimling and Associates, a dairy market analysis and consulting firm. “That will get resolved because prices are high and margins are getting better,” he added, “but it just doesn’t happen overnight.”

The price of butter also jumped 21.3% in the past year, due in part to the declining milk production. Prices are returning to their historical average after dropping during the earlier stages of the pandemic as demand for restaurant dining fell, according to Peter Vitaliano, chief economist of National Milk Producers Federation. The average American consumed the equivalent of 25 sticks during 2020, according to the USDA.

Elsewhere in the grocery aisles, poultry and egg prices are up 17.3% and 33.1% respectively. Avian influenza, also known as bird flu, contributed to those increases. In the produce section, droughts helped account for an 11.4% increase in the price of lettuce, 9.3% for citrus and 6.57% for bananas. Sugar and sweets are up 9.4%.

What’s getting cheaper

Some items are getting less expensive, illustrating that inflation isn’t sending all prices up.

Smartphones and TVs are considerably cheaper than a year ago thanks to aggressive discounting by retailers. Roughly 71% of TVs purchased in the U.S. from January to April of this year were sold at a promotional discount, according to the NPD Group. Last year that figure was 18%. Smartphones are also 20% less expensive.

The price drops are a function of declining demand. Many consumers loaded up on TVs, computers and other electronics earlier in the pandemic, and interest in purchasing more of these items has since cooled, said Ben Arnold, consumer technology analyst for the NPD Group. Some mobile carriers are offering favorable device trade-ins and discounts, said Nabila Popal, research director at IDC within its consumer devices team.

“It is the massive trade-in offers from carriers these days, up to $1,000 for even a damaged phone, that make new phones practically free for the consumer,” said Ms. Popal. “I don’t see these kinds of deals anywhere else in the world.”

Other price drops can be found while boarding a ship, where fares are down, or attending a sporting event, where tickets are cheaper. Car and truck rentals are also more affordable than they were a year ago thanks to a flow of new inventory that allowed agencies to ease rental terms, said Ivan Drury, senior manager of insights at Edmunds.com.

What hasn’t changed

Some prices haven’t budged much over the past year. Funeral expenses, jewelry prices, internet services and alcoholic beverages served at home showed only slight increases.

State motor-vehicle registration and license fees also increased just 0.7% in the past year. “Those prices don’t really move with the state of the economy. They’re fairly rigid,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

Even college tuition and fees showed just a slight 2.2% year-over-year increase. That could still change, however. Tuition tends to be increased in the one or two months before the academic year starts, according to Ms. Rosner-Warburton.

“Major changes in the economy earlier in the year or the prior year might not even show up until that summer period,” she said.

A closer look across many industries reveals other pockets of relief amid a widespread surge in prices. Men’s suits are pricier, but men’s pants and shorts aren’t. Beef and veal prices increased by 4.1% in June compared with the year before, but the price of uncooked beef steaks declined by 0.3%. Lettuce for salad costs 11.4% more, but the price of tomatoes in the same bowl went up only 0.6%.

“It’s not a single, simple story,” said Jayson Lusk, a professor and head of agricultural economics at Purdue University.

Credit goes to J.J. McCorvey. Published July 16, 2022 on the Wall Street Journal
 
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This Week’s Author, Zak Kitzmiller