With inflation rates hovering at 40-year highs, people keep getting the old chestnut about a dollar that doesn’t go as far as it used to.
Just ask anyone who recently bought a slice of bacon or a dozen eggs, among other household items.
A person who paid for breakfast items in May 2021 would have to pay an additional dollar apiece to get the same amount of eggs and bacon in May 2022, according to Friday’s inflation data.
The CPI, closely watched by the Bureau of Labor Statistics, revolves mostly around percentage price increases – and Friday’s reading showed a steep reading for May.
Total expenses for consumer goods and services rose 1% month-on-month, beating analysts’ expectations, and 8.6% year-on-year, according to the agency. All three stock market indices (DJIA,
) fell sharply after the hotter-than-expected May numbers landed.
The CPI data also included average dollar costs for specific commodities. A look at the numbers reminds us that inflation may be about rising prices – and also falling purchasing power. Especially at a time when wage growth is lagging behind.
From May 2021 to May 2022, workers’ wages rose 5.2%, the Bureau of Labor Statistics said last week.
Overall, it would take about $292 for a person last month to have the same purchasing power of $100 in a baseline period of 1982 through 1984, according to the most recent Bureau of Labor Statistics data shown. A year ago, it would have taken that person about $269 to have the same spending power.
Which comes back to the eggs.
In May 2021, if a person bought a dozen Grade A eggs, they paid an average of $1.62, according to federal data. Last month, the same egg carton cost $2.86.
So if a customer tried to pay $1.62 for eggs now, they would get about 43% fewer eggs due to their lower purchasing power.
The breakfast visitor would also get less bacon. Last May, they paid an average of $6.34 a pound. This May, they paid an average of $7.36. If they tried to spend just $6.34 they would get 14% less bacon.
The same dynamic applies to other staple foods, including white bread, chocolate chip cookies, chicken breasts, milk and oranges.
Overall, food costs increased by 12% from May 2021 to May 2022, May inflation data shows.
Even more blatant is the lost purchasing power of petrol. According to GasBuddy, the national average has now passed the $5 per gallon mark. national average on Friday, according to AAA, was only about $4.99. A year ago it was $3.07 a gallon.
Although equal quantities of goods cost more today than they did a year ago, consumers are also increasingly having to contend with “shrinkflation,” where packaging gets smaller while prices stay the same. Manufacturers are shrinking packaging in hopes that consumers won’t realize they’re essentially paying more for less.
Certainly the story of inflation at this point is its spread to many walks of life beyond the grocery store.
The question is if and when consumers will curb spending because the sticker price is just too high.
Widely watched consumer sentiment hit a record low on Friday as people braced themselves for high inflation to persist.
In the past, low consumer expectations “would have been consistent with a significant contraction in real consumer spending,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, on Friday. “But we don’t see any signs of that at the moment.”
Shepherdson has a theory for the split between consumer sentiment and spending. That’s “probably because consumers are sitting on an extra $3.5 overall.” [trillion] in bank accounts and money market funds, compared to what we would have expected without the pandemic,” he said.
https://www.marketwatch.com/story/what-8-6-inflation-looks-like-for-the-average-grocery-shopper-bacon-is-over-7-a-pound-cookies-are-up-49-cents-11654893521?rss=1&siteid=rss What 8.6% inflation looks like for the average shopper in a simple chart