Consumers’ behaviors cause the consumer price index (CPI) broad heading of food to understate the real or wallet level of inflation. It is much worse than the top line statistic—it is a serious offense to the poor and fixed-income citizens.
The CPI measures nominal dollar changes based on month over month and year over year for 299 items. The year ending December 2021 posted an overall CPI of 3.4 percent. Food at home was up 6.5 percent during this period. For the year ending 2022 the CPI rose 6.5 percent while food rose 10.4 percent. Compounding the two years the CPI rose 11 percent, and the food at home category rose 17.6 percent.
For this same two-year period nominal hourly wages for private industry rose 15 percent. A two-year period from fourth quarter 2020 to fourth quarter 2022 shows real wages decreased by 4 percent. There is no relief, even for the fully employed.
Drive a few miles down a main road in my hometown of Brookfield, Wisconsin, and you’ll see many gas stations. Prices may vary, perhaps by 5 percent: $3.09 a gallon to $3.29 a gallon. Buying gas is passive. There is little to gain by shopping one station for another for a five-cent savings on twelve gallons of gas. Buying gas is an “on my way” task. I’ll get gas on my way to the hardware store.
Sales of inferior goods increase when consumer purchasing power is constrained. Higher prices for normal and even inferior goods drive the purchase of substitute goods, if available or affordable. The changes may be subtle, difficult to quantify, and missed by the survey or those who interpret them.
Grocery shopping is not passive. Food prices are more elastic than gas because consumers have choices. A vigorous market of consumer preferences is exercised at the grocery-cart level. Some decisions include menu planning, buying generic brands, buying bulk or larger quantities for lower unit cost, specific sales from weekly ad scrutiny, shopping in multiple stores including big box stores, finding substitutes, purchasing inferior goods, or just saying no to pricey or discretionary items. Searching for more reasonable prices increases the time and mobility necessary to find bargains, adding opportunity costs to the equation.
The nominal cost of goods measured is more punishing to the consumer when we add these efforts to economize. They are paying more with weaker dollars after exerting an effort to pay less for their real cost of goods, even if they could exercise shopping discretion.
Treasury secretary Janet Yellen told the public that the nuisance of inflation was temporary. Inflation is not temporary; it compounds. It will never be negative. For a true-up of the two-year period of food inflation, let’s use a two-year comparison. Narrowing this to a general kitchen-plate comparison we can select menus for breakfast, lunch, and dinner.
We will keep the costs at the average nominal price increases as reported by the Federal Reserve Economic Data for March 2023. We compare twelve months ending February of 2021 through January of 2022 and then compare to twelve months through January of 2023.
For breakfast consider eggs, bacon, toast, bananas, and coffee. In 2021 the cost of this meal increased by 14 percent from 2020. In 2022 this same meal increased 25 percent from 2021. In twenty-four months, the increase was 42 percent. Switching to cereals for a bargain? Maybe not. The 2021 and 2022 price increases for cereal and bakery items compounded two-year increases of 27 percent.
Lunch is a cheeseburger. Bread, ground chuck, and cheese all increased. This meal edged up 3 percent from 2020 to 2021. However, that same meal for the year ending 2022 cost 12 percent more.
We will plate chicken, potatoes, and carrots for your dinner. This meal remained flat in the first year, just as lunch did. The change for the year ending 2021 was 3 percent more expensive. In the year ending 2022, the two-year cost increase was 36 percent.
To summarize: the two-year increase on breakfast was 42 percent. The modest cheeseburger lunch increased 12 percent, and dinner was up 34 percent. The media lost their composure, criticizing the clever Wall Street Journal editorial which suggested you could skip breakfast.
Low-income and fixed-income people feel greater pain from inflation. Income limitations prevent adjustments for higher food prices. The Social Security increase in 2021 was 1.3 percent. The 2022 increase was 5.9 percent, providing a compound increase of 7.2 percent over two years.
But the rent “eats” first. And rents have increased.
A National Institutes of Health survey by All of Us with over one hundred thousand participants noted that 9 percent of those surveyed from May 2020 to February 2021 ran short on money for food. In 2020 6.7 percent of American families used a food bank. In 2022 over 53 million people used food banks or emergency kitchens.
Inferior goods are illustrated in ground beef prices. In my area’s grocery store average pricing has settled on the price point of $3.99 for a pound of ground chuck. Pricing in 2021 was based on 8-percent fat content. The 2022 price is now for fat content up to 20 percent: same price, same product name, different or inferior quality.
In Wisconsin and the greater Milwaukee area, we have a thriving Friday fish fry dinner tradition. Every week churches and not-for-profits become takeout restaurants offering fried cod, fries, coleslaw, applesauce, and rye bread. Even theme and ethnic restaurants adapt their menus to match the community fish fry frenzy.
This is a huge market in one good (cod or whitefish) with many buyers and sellers. During Lent more cod is consumed than in other seasons. Cod can be an example of an inferior or substitute good.
Fresh fillets can be as much as $14.99 at a specialty market. Previously frozen cod was recently sold for $8.99. Frozen cod went on sale for $6.99. Purchasing frozen cod instead of fresh is a substitute, or an inferior good, matching many of the characteristics of fresh but lacking in taste. Any activity by consumers electing different types of cod to save money is lost in the CPI for food. This doesn’t just happen with cod.
Consider Girl Scout cookies. An adult supervisor at a recently visited sales table shared that a box of cookies was five dollars. Responding to my questions, she said they were four dollars a box two years ago. When asked if there was any shrinkflation the adult nodded and said, “We think so on some, but we’re not sure.” Cookie prices increased 25 percent. We can expect unit sales counts to be down, but maybe not nominal sales if consumers don’t rally.
Continued expansion of federal largesse on many fronts will proliferate the compounding of inflation. More citizens will become food insecure or needy.
Despite value shopping and thrift effort, food prices increased 17 percent. If the consumers sought a simple 10-percent savings, the real cost of food at the cash register increased more than 25 percent, paid for by real wages that fell by 4 percent.
Don’t expect relief. The inflation insouciance is systemic in DC and the Federal Reserve. Janet Yellen’s replacement at the San Francisco Fed is Mary Daly. Like Secretary Yellen, she was an inflation denier.
In a let-them-eat-cake moment, Daly responded to a question on inflation.
I’m not immune to gas prices rising, food prices rising. . . . But I don’t find myself in a space where I have to make trade-offs, because I have enough, and many, many Americans have enough.
You may not be able to go to the vacation you want. You may end up instead camping or doing a stay-cation. . . . And I see all of that.
This is a catastrophe aboard Plato’s ship of fools.
This Is Why They Banned Alex Jones!
Source: News Wars Rephrased By: InfoArmed