Category: Economics

Background: U.S. Core Inflation Rate Trends

“Hardworking Americans are suffering because of the Harris-Biden administration’s dangerously liberal policies . . . Prices are excruciatingly high, and the cost of living has soared – leaving those on a fixed income unsure of how they are going to afford a basic standard of living in the future.”
Trump campaign statement prior to tonight’s MAGA rally in Asheville, NC

Continuing his trailblazing record of lying per minute (L/M), Donald Trump will tonight convince his MAGA acolytes that inflation is running at high speed. This in the face of Bureau of Labor Statistics (BLS) report today that inflation is moderating as it has done for the past year. BLS sums it up:

“In July, the Consumer Price Index [CPI] rose 0.2 percent, seasonally adjusted, and rose 2.9 percent over the last 12 months, not seasonally adjusted.” 

Given the inflation panic afoot in the country, particularly among the always misinformed and generally undereducated MAGA crowd, the truth is clear: after peaking in 2022 and 2023 CPI has dropped over the past year to approximately 2.9%. Frankly, the inflation scare during the Biden administration was the result of unrelenting lying by the MAGA/GOP, and, of course, COVID’s negative economic impact, an extraneous and extraordinary event that has by and large worked its way through the economy as, for example, supply gluts diminish.

And below is CPI by sector, through July 2024 (note the overall trajectory and, apropos of this posting, the food sector, which, according to USDA’s Economic Research Service, peaked at 11.4% two years ago (year-over-year)(YOY), now sits at 2.2% YOY.

In fact, the overall CPI is nearing the Federal Reserve Board’s so-called “target rate” of 2%, and stock market mavens are so very pleased because inflation’s decreasing trend of late signals to them that the Fed next move may be to reduce interest rates, which – WHOOPEE! – will help reverse the equity markets’ recent swoon. Nonetheless, inflation hysteria haunts many American families, often at mealtime.

How did the now dissipated surge in overall food prices occur over the last few years (falling from August 2022’s 11.4% to today’s 2.1%)? The reasons, as with all food sector inflations, are familiar, although the COVID pandemic was an unusual event, and the principal driver of inflation throughout the economy. Food inflation factors, 2020-2024, include:

• Supply chain issues due to COVID disruptions throughout the world
• Economy-wide inflationary pressures, particularly in housing and services, and for a time, food 
• Wholesale food prices, as suppliers raised prices, controversially, many label this price gouging 
• Weather conditions, droughts reduce crop yields by causing crops to fail, and forced cow-calf producers to sell cows, which cause to tighter beef supplies and higher price; and extreme summer heat that damages crops, such as olive trees, soybeans, rice, potatoes and cocoa.
• Supply disruptions in major food producing countries, particularly in war torn Ukraine, a European breadbasket
• Rapid recovery of consumer demand, particularly in restaurant food
• Animal disease outbreaks, avian flu substantially affected egg prices (and still does)

Eat, Drink, Be Merry, Inflation Be Damned

As we see, despite perceived food inflation causing gnashing of Americans’ teeth, their food costs have gone downhill, and the decline has occurred for long enough to have been noticeable to consumers. This is especially true for food at home, nonetheless, inflation remains troublesome at the businesses where food price inflation is the highest, restaurants of all kinds.

Let’s unpack this: where Americans eat is an personal and economic choice, and their choices are, according to especially right-wing economists, supposedly determined by price. Therefore, the “rational” economic choice would be to eat where one can eat most inexpensively, i.e., at home. And food at home prices have moderated since January 2023, with today’s BLS report revealing that food CPI is at 2.2% (YOY), with food at home inflation falling to 1.1% for July (YOY). Food away from home – a segment of the inflation-hot service economy – sits at 4.1%(YOY). The economically rational choice would be to eat at home, would it not? Indeed.

According to the USDA’s Economic Research Service July 2024 forecast, Food Price Outlook, 2024 and 2025:

“The level of food price inflation varies depending on whether the food was purchased for consumption at home or away from home.

• The food-at-home (grocery store or supermarket food purchases) CPI was unchanged from May 2024 to June 2024 and was 1.1 percent higher than June 2023; and
• The food-away-from-home (restaurant purchases) CPI increased 0.4 percent in June 2024 and was 4.1 percent higher than June 2023.”

The CPI discrepancy between the choice of home prepared meals and restaurant meals is large, and this was not always true. As the chart indicates, beginning in 2011, restaurants, including fast food entities, claimed a large and growing share of consumer spending, except for the period when COVID adversely affected restaurants and families ate at home. A USDA report also observed, “Food-away-from-home expenditures accounted for 58.5 percent of total food expenditures in 2023—their highest share of total food spending observed in the series.”

So, the right-wing economists argument that consumers will make rational choices when prices are high seems to come up short when applied to food choices. We have inclinations to rational thought, nonetheless, we have impulses as well, and we simply enjoy going out to eat, especially when we perceive economic hard times. This despite the fact that we are manifestly not in a swooning economy. Perceptions, though are important. Thus we do the non rational things as a way to soothe those perceptions, and, ironically, we feed the very price inflation we perceive. It doesn’t help that media and the MAGA crowd push false messages, particularly Trump and company. As for me, I’ve convinced myself that what I need is an inflatedly large rib eye steak, at an inflatedly expensive restaurant. Tonight.