September 16, 2005

...AND CHEAPER...:

US inflation less than expected (BBC, 9/15/05)

[W]hen volatile fuel and food costs were excluded price growth fell to just 0.1%.

Posted by Orrin Judd at September 16, 2005 8:42 AM
Comments

When excluding for things that go up in price, it is found that things aren't going up in price. Brilliant!

Posted by: Robert Duquette at September 16, 2005 9:07 AM

Robert:

Yes, inflation isn't a rise in the price of an item, but rising prices generally. Instead we have deflation generally with temporarily elevated gas prices.

Posted by: oj at September 16, 2005 9:16 AM

Did the BBC inform Greenspan?

Posted by: erp at September 16, 2005 10:36 AM

While I agree with oj's "theme" that overall inflation is under control, it is unfortunate that current price jumps in "volatile" segments are hitting the poor and middle class quite severely, which may have consequences for all of us in the long run.

Unlike TV's and other electronic devices, which are discretionary purchases (and dropping in price), food and energy are required for life, and are rising rapidly. I am going to ballpark that the "average" family is now paying $1400 more per year for food and $1400 for energy. In the face of stagnant or slow-growing wages, many have compensated for this by re-financing their homes and taking out HELOC loans which they have been drawing on to fill the gap.

Of course, Alan Greenspan is determined to put an end to THAT, by forcing up interest rates and "popping" the housing bubble. If he gets his way, the resultant recession will not be a pretty one.

But hey! At least our foreign trade balance of payments will improve! Yay!

Posted by: HT at September 16, 2005 10:44 AM

HT:

Except that food hasn't increased much.

Posted by: oj at September 16, 2005 10:48 AM

You must not eat. And you can tell just by looking at him that Greenspan doesn't. Over the last couple of years, I have seen prices rise across a broad range of food products. Beef, +40%. Chicken, +100%. Canned tomato products, +20%. Olive oil, +30%. The list goes on, and includes most of the staple products that people should be eating. I admit that I don't buy a lot of snack foods, so I don't know where the Federal cracker index stands, but if you were shopping smart and eating right a couple of years ago, you've taken quite a hit since then.

Posted by: HT at September 16, 2005 11:47 AM

HT is right on. The question to ask yourself is "can I make up for my rising gas bill by buying cheaper electronics?". How many flat-panel TVs do you need? How many commutes to work can you cut back on?

OJ is right regarding manufactured goods, but the factor that will impact middle and not-so-middle class Americans the most will be energy. You can praise cheap crap all you want and use volatility as an excuse to ignore the growing impact of energy costs, but in the end consumers will recognize that gas is eating a bigger hole out of their budgets, and wage increases aren't coming to the rescue. That is one way in which this decade won't mirror the 70s. Back then wages kept pace with inflation.

Posted by: Robert Duquette at September 16, 2005 11:54 AM

HT:

Our flier came from Shaw's today and pork chops are $1.88 a pound, chicken leg quarters 59 cents a pound, chicken breast packages are buy one get one free, 18 oz cans of oats are 10 for $10, tomato sauce two for one, coffee 43 oz for $4.44...

Prices of food have fallen for smart shoppers, not risen.

Posted by: oj at September 16, 2005 11:58 AM

Robert:

Today wage hikes far outpace deflation.

Posted by: oj at September 16, 2005 11:59 AM

OJ, do you have references to back that?

Posted by: Robert Duquette at September 16, 2005 12:13 PM

Robert, please tell me you aren't nostalgic for the '70s.

Posted by: joe shropshire at September 16, 2005 12:15 PM

joe:

He wants all the gold in his bunker to go back to $900 an ounce.

Posted by: oj at September 16, 2005 12:23 PM

OJ: three thoughts. First, you are quoting the loss-leader sale prices that grocery store chains use to get you in the door. Then they stick it to you elsewhere. Second, however, even the sale prices you quoted result in goods which are higher priced than they were a couple of years ago. Chicken legs and thighs, for example, used to be $.39 per lb even when not on sale. Third, there are a lot of people who just can't afford to stock up on sale items and store/freeze them until needed.

Trust me, shopping for groceries (and then cooking and eating them, mmmm) is sort of a hobby with our family. We scan the flyers for deals, PLUS go to Walmart (their GV brand offers some great values, especially on canned goods), AND use coupons. But things are just more expensive than they used to be, overall.

It's only a part of our total purchases, but the bi-weekly Walmart bill has risen from around $80 to about $120. The recent jump in olive oil hit us particularly hard (bet that's not what you'd normally think of when you hear someone complaining about high oil prices, eh?).

Posted by: HT at September 16, 2005 12:27 PM

Buy canola oil. Or corn oil. Or Crisco. Or feline oil, until the price of olive oil drops.

Posted by: ratbert at September 16, 2005 12:47 PM

ratbert: step away from the kitchen, and no one gets hurt. Canola oil? Ugh.

Semi-seriously, I'll bet you are still waiting for the price of California reds to come back down, aren't you?

Posted by: HT at September 16, 2005 12:54 PM

HT:

That's more than made up by the real price drops on things like breakfast cereal. Shaw's is also giving you $8 off your order these days. You're right though that shoppers need to be disciplined to reap the full rewards of falling prices and may need to make a bit of room under the bed for canned goods and whatnot.

Posted by: oj at September 16, 2005 12:54 PM

Almost forgot: canola oil, in addition to tasting icky, has the added disdvantage that using it increases our balance-of-payments deficit, which makes Alan Greenspan mad. And you won't like him when he gets mad.

OJ: so you recommend that we eat more cereal and less chicken (since you can't keep chicken under the bed)? By the way, we don't eat a lot of cereal, but it certainly seems like our old standby Grapenuts, at $2.97 a box even at Walmart, is more expensive than it used to be. (Ratbert: or do I need to switch to Froot Loops?)

Posted by: HT at September 16, 2005 1:00 PM

HT:

No, the chicken goes in the freezer, though cans of chicken and tuna are so cheap you can stock up on them and keep them under the bed when they're on sale.

Posted by: oj at September 16, 2005 1:10 PM

Robert:

You have energy prices on the brain. According to a local car dealer, the Canadian government estimates the average annual gas and oil cost of running a smallish family sedan is around $900.00 and a 4-cycl SUV about $1100.00, and that is in our funny money. Gas prices here today are about 17% higher than the 2004 low, where they had been for a long time. Are you telling us we're all going to be cycling soon? That the absolute extra cost couldn't be covered by almost everyone without even noticing?

Posted by: Peter B at September 16, 2005 1:17 PM

OJ: from time to time, you post some pretty good recipes here. I'd love to see a couple using canned chicken (urk). Although I'll have to look the next time I'm at Walmart (tomorrow, as it happens) to see if it is actually less per lb. than the "fresh" stuff.

The average freezer doesn't have enough room to inventory a lot of surplus meat, while simultaneously accomodating all the other stuff that needs to go in there. Also, buying a second freezer and stocking it up is (1) an additional cost and (2) requires an short-term spike in spending that many people cannot afford.

My point is that as a family we utilize all of the methods recommended above (except using canola oil and canned chicken), and our grocery bills have still gone up by about 40%.

By the way, I was just re-reading one of my earlier posts, and the canola oil point suddenly made me wonder: does anybody besides me find it somewhat, um, ironic that Alan Greenspan advocates globalization, while simultaneously yelling at us about our trade deficit? The little scamp.

Posted by: HT at September 16, 2005 1:22 PM

OJ: if the average American drives 15,000 miles per year (at least that's what Edmunds and Kelley seem to think), it would take 600 gallons @ 25 mpg. That comes to around $1800 for a reasonably efficient sedan, and $2400 or more for a station wagon or minivan or SUV (which families with more children, which you seem to favor, would need). The recent increases in fuel prices are thus costing the average family $1200 to $1800 per year, at a minimum.

Posted by: HT at September 16, 2005 1:28 PM

If we assume a two-vehicle family, with total annual miles driven at 20,000, and an average MPG of 19, (15 MPG for the minivan/SUV, 25 MPG for the sedan, usage split 60/40), then:

If gas prices are $ 2/gal, total annual fuel expenditures are $ 2,105.

If gas prices are $ 3/gal, total annual fuel expenditures are $ 3,160.

If gas prices are $ 4/gal, total annual fuel expenditures are $ 4,210.

So, this hypothetical family would be spending $ 1,000 more a year on gasoline than they were in '01.

While that's a slight burden, nothing about the economy between '01 and now suggests that most people find it especially onerous.

Total consumer spending is up, auto sales were brisk, sales of SUVs and light trucks only recently began to suffer, and more people are employed than ever before (in absolute numbers).

Posted by: Michael Herdegen [TypeKey Profile Page] at September 16, 2005 1:39 PM

Peter,
See HT's reply. It might not break your budget, but fuel increases are making a significant impact to the average person's budget. So if a dollar increase in gas adds $600 to an annual budget, for a person/family with a budget of $30k that is an inflation rate of 2% just from fuel. For a budget of $20k it is 3%. And people in this income range will be lucky to see a 2-3% pay raise a year, most likely they'll see flat or declining wages. Add the 1.2% "core" inflation rate and food increase, and these people are losing ground.

Posted by: Robert Duquette at September 16, 2005 1:52 PM

HT:

Sure, so they need to drive less for a while.

Posted by: oj at September 16, 2005 1:53 PM

HT:

Everyone can afford a tv and a phone in every room--they can afford a meat freezer. But rather few folks don't have room for meat because of things they "need."

Posted by: oj at September 16, 2005 1:55 PM

... I don't know where the Federal cracker index stands ...

HT, Don't fret, oj has these numbers well in hand.

Posted by: erp at September 16, 2005 1:56 PM

Robert:

Your argument is that the price of gas both has a huge effect on our wallets and no effect on our behavior, an improbabilty.

Posted by: oj at September 16, 2005 1:57 PM

No, I'm just trying to establish that price inflation is not an insignificant phenomenon. Coping with price increases does not negate the fact that price increases have occured.

Posted by: Robert Duquette at September 16, 2005 2:11 PM
(Sept. 16) - Crude-oil prices slipped below $64 a barrel Friday after OPEC lowered its demand forecast...
Light, sweet crude oil for October delivery fell $1.25 to $63.50 a barrel in midday trading on the New York Mercantile Exchange. October Brent crude futures on London's International Petroleum Exchange fell $1.38 to $62.28 a barrel.
Heating oil slumped more than 5 cents to $1.8550 a gallon, and gasoline dropped nearly 8 cents to $1.82 a gallon.
"Everyone is lowering their expectations for demand," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "It's taken the urgency out of the market."
Gas prices at the pump are slowly following suit the average price of a gallon of unleaded gas was $2.89 on Friday, down from $2.92 the day before and the all-time high of $3.06 reached Sept. 5.
- By MADLEN READ, AP
Posted by: Michael Herdegen [TypeKey Profile Page] at September 16, 2005 2:12 PM

And, to bring this full circle, it's not inflation if the price of one commodity, even a very important commodity, goes up for reasons of supply and demand.

Posted by: David Cohen at September 16, 2005 2:14 PM

Michael,
Two steps up, one step back. Don't you think it strange that if there is enough supply relative to demand that demand should be dropping off because of increased price levels?

David, why not?

Posted by: Robert Duquette at September 16, 2005 2:21 PM

You guys get lousy mileage.

Orrin, that is exactly what he is arguing and so are you, as I assume that is your complaint about too low prices. Everyone is assuming that the price ranges in question are within the boundaries of price inelasticity, which is another way of saying either a)all current driving is an absolute necessity; or b)almost everyone is finding a way to cover the increase fairly painlessly. As a is obviously nonsense for most people, it must be b. Robert, you should call us when people start complaining their kids are going hungry because of gas bills. It would be pretty hard to find a year of low inflation where nothing at all went up.

Posted by: Peter B at September 16, 2005 2:23 PM

Just got my Notice of Assessment for the farm. The value went up $31,000. Which will mean more property taxes. Gasoline was $2.89 Monday, today $2.79.

Posted by: AllenS at September 16, 2005 2:26 PM

Peter:

No, I'm arguing that in a climate of general deflation the increased gas prices are too little to make much difference, which is why we should raise them artificially and use them as a revenue source.

Posted by: oj at September 16, 2005 2:30 PM

Allen:

There's an arrchetypal American complaint about the standard of living--my net worth is getting so high my taxes are increasing....

Posted by: oj at September 16, 2005 2:40 PM

Forget the Froot Loops. But shredded wheat is still a bargain (especially the store brands). So is oatmeal. Throw in bananas and you've got all your heart (and colon) needs.

Now, are there any of you out there buying the 'nouveau' jars of spaghetti sauce that run for $5.29? Who actually spends that much?

I usually get the $1.59 Ragu or store brand stuff, and then get one jar of the Cabernet Marinara (or other more exotic flavor), just to pick up the taste a little. With a couple of boxes of rotini or angel hair, some broccoli, and bread, it makes for a nice meal that is under $15.00 (for four).

Posted by: ratbert at September 16, 2005 3:27 PM

Spaghetti sauce is two for the price of one as well.

Posted by: oj at September 16, 2005 3:29 PM

Robert: Because that's how inflation is defined. Inflation is a monetary phenomenon, which is why the Fed, in control(?!) of monetary policy, is tasked to limit it. A price increase due to falling supply or increased demand has important allocatory functions and shouldn't be interfered with.

To put it differently, if the supply of gas has been constrained, you want the price to go up so that people will conserve or substitute. "Fighting" that increase in price with monetary policy would be counterproductive and useless. On the other hand, a general increase in price caused by expansion of the money supply is inflation, gives consumers no useful information about gasoline usage (for example) and can be fought by constricting the money supply. Food and fuel are segregated out from "core" inflation because they are so volatile that they fuzz the signal about monetary policy.

Posted by: David Cohen at September 16, 2005 3:42 PM

oj,

My house is almost 100 years old, and looks it. My barn was built in 1925, and without my intervention, would have fallen down by now. My taxes in 1974 were $230. Last year $1,950. I made $23,000 last year.

Posted by: AllenS at September 16, 2005 4:00 PM

Ratbert: none of those fancy sauces in a jar for me. I make my own. Using, I must point out, olive oil.

But your sauce strategery is a good one, although I suggest you consider the Hunt's, Contadina, or Del Monte sauces in the 26 oz. can (available at Walmart for around $.97 each, although recently they were as low as $.88).

Also at Walmart, you can pick up Barilla dried pasta at $.88/lb. Rather than angel hair, by the way, I recommend spaghetti rigati, which holds the sauce better and is easier to prepare al dente.

Bon appetit!

Posted by: HT at September 16, 2005 4:15 PM

HT:

2 boxes for a dollar if you buy on sale.

Posted by: oj at September 16, 2005 4:40 PM

Allen:

What's it worth?

Posted by: oj at September 16, 2005 4:43 PM

Land $37,700
Improvements $117,600

Last year
Land $32,700
Improvements $91,500

My taxes are based on this: the most expensive acre is the one that the well is on. Next is the woods, then tillable cropland and finally pasture land. Improvements mean buildings. I have the house, barn, 24 x 24 garage and a 30 x 70 pole barn. I paid $20,000 for the place in 1973. What you see is the assessed value for tax purposes. I'm not sure what's worth, but I know 3 real estate agents and they tell me that they each have a 100 people who would like to buy the place. It's 40 acres.

Posted by: AllenS at September 16, 2005 5:38 PM

So in thirty years it's octupled in value?

Posted by: oj at September 16, 2005 5:42 PM

The assessed value in 1974 was $12,600. The assessed value is different from what I could sell it for.

Posted by: AllenS at September 16, 2005 5:58 PM

So it's more than octupled.

Posted by: oj at September 16, 2005 6:02 PM

I don't know why the township needs so much money. When I moved out here there wasn't 1,000 people in the township, now there is more than 10,000. We have no police or fire department. The only difference is the road is plowed right after a snow storm instead of 3 or 4 days later.

Posted by: AllenS at September 16, 2005 7:11 PM

Ratbert wrote: "Or feline oil,"

Imagine what Catbert would say.

Posted by: Robert Schwartz [TypeKey Profile Page] at September 16, 2005 9:02 PM

OJ: what kind of pasta is that? I'm guessing a brand that doesn't use brass fittings for its extruders. Or are the boxes 8 oz. instead of 1 lb.? Or, are you just getting a better deal?

The best pasta price I've seen outside Walmart is the (10) 1 lb. boxes for $10 that Safeway, et al. occasionally use as bait. N.B.: contrary to popular belief, dried is actually better than fresh for almost all types, and what really makes a difference is the roughness of the surface, which the cheaper brands do not offer.

But I'm always willing to be edumacated. Especially in matters of food. After all, even if I'm humiliated, at least I'm eating better when it's done.

Posted by: HT at September 16, 2005 9:11 PM

I get Barilla, Prince or Ronzoni--whichever is two for a buck and one always is.

Posted by: oj at September 16, 2005 11:04 PM

Fair enough. The only one of those I'd avoid is Prince. And frankly, I've never seen Ronzoni on sale. But Barilla is a staple. Again, try the spaghetti rigati. Abbondanza!

Posted by: HT at September 16, 2005 11:20 PM

In 2004 dollars, AllenS bought his property in 1973 for $ 93,000. In 1974, the property had an assessed tax value of $ 57,000. He paid $ 1,040 in property taxes that year, 47% less than what he paid in '04.

Since we don't know how much he's spent to improve and maintain the property, we cannot know exactly how much the property has appreciated over his outlays, but as a guess, the property value has tripled, for an average annual return of ~3.5%.

Posted by: Michael Herdegen [TypeKey Profile Page] at September 17, 2005 12:05 AM
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