How Costco bacon and fish shape the American view of inflation

The inflation started in the bacon aisle for Dan Burnett, 58, a former medical center administrator living in Margaretville, New York.

Last summer, he began to notice that the base price of breakfast was increasing dramatically, rising to $ 10 from $ 8 per pack at his local grocer. Before long, a wide variety of food items became more expensive, so many that she began driving 45 miles to shop at Aldi and Walmart, hoping to get better deals. This summer, it appears that inflation is driving up prices across the board, for brake repairs, hotel rooms and McDonald’s fries.

“My biggest fear is that they won’t get it under control and it will persist,” Burnett said. He’s thinking about how he might have to reshape his financial future in a world where prices – which had long since risen at a rate of 2% or less per year – are now rising considerably more.

People like Burnett, who is beginning to believe that the price explosion in America could last, are the Federal Reserve’s biggest fear. If consumers and businesses expect rapid inflation to be a permanent feature of the US economy, they may begin to change their behavior in ways that keep prices going up. Consumers could start accepting price increases without shopping, workers could demand higher pay to cover rising costs, and companies could raise prices both to cover higher labor bills and because they think customers will support. the highest price tags.

Economists often blame that kind of spiraling inflationary mindset for fueling rapid price gains in the 1970s and 1980s, a painful episode in which inflation proved difficult to tame. That’s why the Fed, which is responsible for keeping inflation in check, focused on a series of inflation expectation measures, hoping that a high price psychology wouldn’t take hold.

Most of the signs suggest that people still believe that inflation will fade over time. But interpreting inflation expectations is more art than science: economists disagree on which metrics matter, how to measure them, and what could make them change. And after more than a year of rapid price increases, central bank officials are increasingly concerned that it’s foolish to take the stability of price expectations for granted. Officials quickly raised interest rates to try to cool the economy and send a signal to the public that they are serious about fighting downward price increases.

“There is a clock running here, where we have had inflation going on for more than a year now,” Fed Chairman Jerome Powell said recently. “It would be bad risk management to assume that long-term inflation expectations would remain anchored indefinitely in the face of persistent high inflation. So we’re not doing it. ”

Central bankers are watching the measures closely, including the University of Michigan’s long-term inflation outlook survey, as they try to judge whether expectations remain hidden. Those have increased since 2020, but have not increased as much as actual inflation. However, those trackers only show where the expectations are today. They say little about when they might change or what might change them.

To get a more detailed and qualitative idea of ​​how consumers think about inflation, the New York Times asked readers what the costs were incurred for them, how much inflation they were expecting, and how that opinion was being formed. The takeaway: While many people still expect inflation to subside over time, that assumption is fragile as many Americans experience the fastest inflation of their adult lives across a wide range of goods and services.

Food and gas prices are weighing heavily on many people’s minds, consistent with research into how consumers shape price expectations. But the particular products that raise the eyebrows vary widely and expand beyond food and gas.

Guitars, rentals, and pedicures are becoming more and more expensive in California. Artisanal crafts are driving higher prices in New Mexico.

People are tackling the costs of climbing in various ways. Many said they were cutting consumption, which could help ease inflation by lowering demand and giving supply a chance to catch up. Some continued to buy, hoping that costs would moderate over time. But others were demanding higher pay or trying to find other ways to cover climbing costs by resigning themselves to raising prices.

For Siamac Moghaddam, 37, who is in the Navy and lives in San Diego, dealing with inflation hasn’t meant so much to cut down on the little things – like the pedicures he likes to do, since he’s always in boots – and more to save with. large expenses, such as rent. His landlord recently raised the rent on the apartment by $ 200, so he moved from his two-bedroom to a bedroom.

“Everyone is adapting,” he said. He thinks the Fed rate hikes will bring inflation under control, even if in the “I think we will suffer economically” process.

Robert Liberty, 68, of Portland, Oregon, is trying to save money on food and travel.

“I grabbed an avocado in the store and pulled my hand back like it was going to burn when I saw the price – it was $ 5.50 per avocado,” said Liberty, a part-time lawyer and consultant whose husband works at full speed once. He thinks inflation will moderate, even though he’s not sure how much. For now, an avocado, he said, is “one thing we can do without”.

This pattern – cutting and hoping for the best, but also planning for a possible future of higher inflation – is what Susan Hsieh is embracing as she watches the rising costs at Kirkland-Costco. Hsieh lives in Armonk, New York, with her husband and two teenage children, and has cut down on her purchase of frozen Chilean sea bass fillets as they dramatically increase in price, which is sad news for her family.

“That fish is really tasty,” he said.

Rising costs for goods and services also prompted Hsieh, who works at a US Treasury branch, to demand higher pay this year. He knew that the 2.2% increase he would get since a typical cost of living adjustment would not keep pace with inflation. He ended up with an increase of just under 5%.

“I think I’ll ask again,” he said of his wage negotiation next year, assuming inflation remains.

Bacon buyer Burnett might offer the clearest illustration of why expectations for faster inflation could create problems for the Fed if they start to take it seriously. For him, the magnitude of today’s price changes makes it hard to believe that inflation will fade soon.

Burnett, who is retired, is considering adjusting his life accordingly. He co-owns a condominium in Florida with his sister and the maintenance costs of the unit are increasing. Although he rents the apartment to tenants for only part of the year, he is likely to pass on the entire increase to them.

He likes tenants and doesn’t want to raise rents so much that he pushes them out, but he might also see himself and his sister paying even more if they notice neighboring landlords are pushing higher prices.

“I really want to make sure I’m maximizing income,” he said, given the inflation. And he thinks other people will do the same, which is what makes him think that inflation is unlikely to go away anytime soon. “Once people have this mentality of ‘You can raise the prices and people will just pay for it’, you’re off to racing a little bit.”

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