The turkey you are planning for the big family reunion will give you a nasty trick on the wallet. Likewise the flour for the sauce and the butter for the rolls.
The latest government report on consumer prices, released on Thursday, showed poultry prices up a whopping 17% year-on-year. Flour is up 24%. Butter and margarine are up 32%.
The pain didn’t stop with the traditional holiday menu. Inflation showed little sign of slowing down almost everywhere. And in areas central to most consumers’ daily lives, prices are rising faster than many Americans have experienced in a lifetime.
Outcomes could include a recession, changes in consumer spending patterns and living standards, and political upheaval in next month’s crucial national elections.
“It’s pretty crazy,” said Laura Shouse, a small business owner in Huntington Beach, referring to rising prices, particularly for the organic grass-fed foods she buys.
Shouse’s response for this Thanksgiving: Buy a smaller bird than usual, have more family and friends bring side dishes, and during these times, pick a little more from her “booster garden.”
The most immediate finding of the new rate report is that the Federal Reserve is now almost certain to give rates another boost, perhaps even beyond the three-quarters of a percentage point it has announced in recent months.
US stocks initially fell on the inflation news but then rallied, ending the day significantly higher after one of the biggest market swings in years. Analysts were stunned by the huge reversal, with some speculating that perhaps the report wasn’t as bad as it looked or the market had already fallen too far.
“I think it’s just gotten too cheap,” said Christopher Rupkey, chief economist at Fwdbonds in New York.
However, it was hard for consumers to see a silver lining. Higher interest rates, for example, will drive new car prices even higher than they already are, increase the cost of buying a home, and raise already skyrocketing home rents.
What’s more, consumers who stashed sizable nest eggs during the COVID-19 lockdowns have used up those savings – meaning overall spending power is likely to shrink.
Persistent inflation is also eating away at the wage increases of many Americans. A recession would exacerbate the problem with more layoffs and downsizing.
Just when pundits thought inflation might be cooling as gas prices have fallen from their summer highs, the latest numbers show it’s still raging across the economy.
The annual inflation rate stood at 8.2% in September, just below August’s level and remaining near a four-decade high, the government said on Thursday. And so-called core inflation, which excludes volatile food and energy, hit a fresh 40-year high last month.
All of this means that an issue that many people have been able to almost ignore in the recent past is becoming something that hurts them in almost every corner of their personal lives.
Thursday’s report showed relief for consumers. Clothing, home appliances and used car prices even fell during the month.
But there was no disappointment in sticker shock for new cars and trucks, which was fueled by a shortage of computer chips that today’s cars can’t drive without.
New car prices are up 19% from two years ago. And to make matters worse, consumer auto insurance costs skyrocketed last month, joining the double-digit inflation club.
Additionally, people may be reluctant to travel over the holidays as gasoline prices, after falling from more than $5 a gallon nationwide in June, have risen and are now back to nearly $4. In California, regular gasoline averaged a whopping $6.20 a gallon as of Thursday.
Medical costs have risen sharply in the past month, as have veterinary services. Transportation services rose as repair shops raised their prices and airfares picked up again.
These high costs are weighing on many more people, with some turning to their credit cards and home equity loans to make up the difference between their paychecks and rising prices.
In September, average hourly wages for all employees in the private sector rose by 4.9% year-on-year, well below the rate of inflation.
For retirees, the September inflation numbers brought separate, welcome news that Social Security beneficiaries will see an 8.7% increase in benefits next year, the biggest increase in more than 40 years.
The annual cost-of-living adjustment by the Social Security Administration is based on the government’s consumer price index for the third quarter of the previous year.
This year, the increase was 5.9%, though higher Medicare premiums eat up some of those gains.
The forthcoming increase should bring some relief to the 70 million Social Security beneficiaries.
“I’m looking forward to it,” said Tom Stapleton, a retired workplace training consultant who lives in Glendale.
People who depend on the federal government’s pension or supplemental income programs have been hit particularly hard by the rising prices of basic necessities like groceries.
“Our people believe that this will quickly be offset by the rise in the cost of living, so at best it will stabilize,” said Renée Ward, founder of Seniors4Hire.org, an Orange County-based organization that helps older workers nationally to find employment to find. Still, she said of the increase in Social Security payments, “That’s a good thing overall… At least it won’t push us back any further.”
Americans may vent their displeasure with inflation in next month’s election.
The country’s troubled economy was a key reason for President Biden’s low approval rating. And with control of Congress at stake in the midterm elections, Republicans have taken on the biggest economic problem facing policymakers, business leaders and consumers.
Washington’s emergency pandemic programs, approved during the Trump and Biden administrations, have supercharged spending. This boosted demand for goods, although manufacturing and supply problems limited supply, fueling inflation.
Supply chain bottlenecks have eased since then, but with the economy reopening and excess savings still sizable, American consumers are raking in and spending more on travel, dining out and other services. And many companies have been able to pass on their higher costs for supplies, labor and other expenses to customers.
This has also helped keep job growth robust. Employers added 263,000 net jobs in September, about three times more than needed to keep up with labor force growth. The unemployment rate hit a half-century low at 3.5% last month.
So far, layoffs have been mostly limited to technology companies and sectors like real estate and finance, which are always very sensitive to changes in interest rates. In the rest of the economy, most companies have been reluctant to lay off workers amid tight labor supply and still-solid consumer demand.
Nonetheless, the hot labor market and broader economy could cool amid higher interest rates, the threat of ever-rising oil prices and the war in Ukraine slowing trade and increasing uncertainty.
The Fed wants both job growth and broader economic growth to slow enough to push inflation back toward its 2% target, and the central bank plans to keep raising rates until it gets the results it wants, even up the risk of this causing a recession.
For now, most economists remain hopeful that the US will avoid a serious downturn thanks to the still-solid job market and the relatively healthy financial position of most households.
“At this point, I believe the worst-case scenario is a mild recession,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, NJ
At least some entrepreneurs would agree, including Daniel Swenson-Klatt.
The 60-year-old, a former middle school teacher turned entrepreneur, has run the Butter Bakery Cafe in Minneapolis for 17 years. Like many other shops, his breakfast and bread shop has benefited from the reopening of the economy. And in August, Swenson-Klatt felt like things were being thrown back to the days before the pandemic. He was again getting orders from a neighborhood theater for cookies and treats to be served during intermission. “Wow, maybe we’re back,” he thought to himself.
But September was a whole different story. He saw fewer customers and more of them were wary. He also closed his cafe on Saturdays all month because he didn’t have enough cooks. He pays his employees $16.25 an hour to get started.
Its cost of materials and supplies is up 15% to 20% year over year, and it’s nearly doubled for paper goods like bags and cups, prompting Butter Bakery to charge a packing fee to customers.
Nevertheless, Swenson-Klatt does not feel that his customers are preparing for a deep recession. He doesn’t panic either.
“It’s been a crazy post-pandemic time,” he said, “and we’re all trying to find that normal again.”
https://www.latimes.com/politics/story/2022-10-13/inflation-october-thanksgiving-food-prices Rising prices set to gobble up Americans’ Thanksgiving budgets