By Edouard Wemy
Economists worried about soaring inflation got some good news to start the year: The rate of inflation has eased. The first report card of 2023 on consumer prices, released on Jan. 12, showed that the overall cost of goods and services decelerated to an annual pace of 6.5% in December, the slowest in over a year and down from 7.1% in November.
But there’s bad news too, especially if you are an egg-munching renter fond of frequent regular haircuts. In quite a few categories, the cost of living rose at an even faster pace.
That’s because price inflation isn’t uniform. Different products and services are affected by myriad factors. So while some prices may have fallen during December, slowing the annual rate of inflation, other items kept getting more expensive.
The Conversation asked Edouard Wemy – an economist from Clark University who never sets off to work without his morning breakfast of two eggs, sunny side up – to explain how different items in the consumer price basket fared in the latest inflation report.
Energy
When you look at the detail of the latest report on the consumer price index, you’ll see that overall energy costs declined. That’s because there was a steep decline in gasoline prices – down 9.4% in the month of December after dropping 2% in November.
While that’s good news, it’s a bit puzzling. AAA was expecting demand for gasoline to be very high over the month, which usually happens in winter. This typically pushes prices up. My best guess is either demand wasn’t as strong as expected due to fears of a coming recession or there has been an easing on the supply constraints that has contributed to pushing the price of gas up.
An exception to this downward energy price trend was in energy services – that is, electricity and piped gas – where prices actually ticked up. The reason is largely due to the rising cost of doing business. Utility companies and pipeline services are suffering as a result of higher labor costs and are passing on the added cost to consumers through higher prices. The latest jobs report shows average hourly earnings rose 4.6% in December from a year earlier.
Groceries
Overall food inflation slowed in December, with the cost of groceries rising just 0.2% in the month – down from 0.5% in November.
But there is a lot of variation in the cost of grocery items. While the price of fruits and vegetables fell in December, the cost of eggs jumped by 11.1%. That’s due to an outbreak of bird flu that could well last until into the summer.
In addition to that, farms are seeing the same wage pressures as other businesses, which are then passed on to consumers.
Housing
The cost of shelter, whether from renting or owning, rose 0.8% in December – the biggest one-month gain since the 1980s.
This is understandable given the numerous interest rate hikes during 2022. Rising interest rates means that taking out a home loan is more costly, which in turn pushes more people into renting. Added demand on rental properties in turn pushes the prices that landlords demand up.
When interest rates eventually drop, it should bring the overall cost of shelter down, as it would encourage more people to buy homes. But I’m not optimistic that rates will fall until 2024, so don’t expect any downward movement on shelter in the coming months.
Hospital visits
The cost of going to the hospital was another category that saw a big increase. Average prices for hospital and related services jumped 1.5% in December, the biggest gain since 2015.
Again, this is due to the rising cost of doing business – that is, upward pressure on wages – coupled with still-high energy costs.
Used cars and trucks
Another category that helped the overall pace of inflation slow down is used cars and trucks.
After soaring throughout the initial phase of the COVID-19 pandemic, used car prices have been plunging in recent months. They fell 2.5% in December, putting the annual decline at 8.8%. The cost of new cars also dropped in December.
Edouard Wemy is Assistant Professor of Economics, Clark University.
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Dennis C Rathsam says
Oh how I long for yester year…..When gas was cheap, food was cheap, and plenty of it. Our southern border has been compramised, Fentenoyl is killing our people, and the worst is yet to come. I worry for my kids & grand kids, we are leaving them a world in decay. Violence, is the new norm. Crime is runnig wild….Where are the leaders? Where is the president? What has happened to our great country in 2 years? Could this be the begining of the end of America?
Pogo says
@Elected Republicans don’t waste money
Oh no — they set it on fire and piss on you to put the fire out…
https://www.gainesville.com/story/news/education/2023/01/11/incoming-uf-president-sasse-to-get-new-300k-pool-at-gainesville-home/69799516007/
What’s in your wallet?
The ORIGINAL land of no turn signals says
Find me something in the grocery store that has risen only 7.1%.It’s more like the 18% that I’ve read in other news feeds.I going to eat at the White House from now on.
Ray W. says
Dear Pogo: How do the below-listed Biden administration achievements comport with Dennis C. Rathsam’s above-listed prediction of the “beginning of the end of America”?
Citing “tax credits and other benefits” available under Biden’s Inflation Reduction Act, a recent Times article reported on an announcement by a Korean solar panel production company to build a second American solar panel manufacturing plant, this one in Georgia. The $2.5 billion initial investment will create 2,500 manufacturing jobs and increase the company’s U.S. manufacturing capacity from 12,000 panels per day to 60,000 panels.
The U.S. Energy Information Administration (EIA) reports that U.S. average daily crude oil production of just under 12 million barrels per day in 2022 was just under the record set in 2019, with 2023 production expected to set a new record of 12.4 million barrels of crude oil per day.
The EIA also reports that American daily natural gas production set a new record in 2022: 98.02 billion cubic feet per day (bcfd). The EIA projects a new record of 100.34 bcfd in 2023 and another record of 102.29 bcfd in 2024. Cheniere Energy’s CEO recently commented to a reporter that improvements in the “regulatory landscape” by the Biden administration has enhanced “energy security” for American allies. Cheniere Energy is the nation’s largest exporter of LNG. The same author linked Biden’s comments on the high prices charged by refinery owners to a recent return to a more normal crack spread, which is the difference between the price paid for crude oil and the price paid for refined products. A lower crack spread means lower gasoline prices.
The increasing pace of U.S. energy production and exports appears to be in direct correlation to western sanctions on Russia, which sanctions are affecting crude oil and natural gas prices worldwide, particularly when coupled with a recent OPEC vote to reduce crude oil production once again in order to keep prices high. Higher international prices appear to have prompted record levels of American energy production.
After the Biden administration met with Venezuelan government officials, some Venezuelan crude oil has returned to the international marketplace.
In an oil industry article, the author reported that Russian crude oil prices have dropped to under $40 per barrel, as it cannot find tanker owners willing to take on a load of Russian oil and risk a lack of insurance on the cargo. Since it is estimated that, on average, Russia spends around $40 per barrel to produce its oil for export, Russia seems to be selling its oil wherever it can at a price less than it costs to extract it. American fracking processes produce crude oil on average for less than $30 per barrel. Saudi crude oil, which doesn’t need fracking, costs approximately $8 per barrel to produce.
Now that Germany has opened its first port facility that can regasify LNG from an LNG tanker coming from the U.S., industry reports note that European natural gas storage tanks are at 91% of capacity, which is as good or better than most recent years during winter. That same article reports that Europe is now buying more LNG, much of it from American companies, than it used to buy compressed natural gas from Russia. The author implied that European independence from Russian energy sources may be the reason why several nations, including the U.S., are sending armored vehicles and other more sophisticated defensive weapons to the Ukraine. Yes, under Biden’s leadership, NATO seems stronger than ever in the face of Russian threats.
I am of the opinion that Dennis C. Rathsam is talking to hear his head roar; his comment means nothing, but it makes him feel good as he types it.
Pogo says
@Ray W.
I agree — it must be a terrible roar indeed. More terrible still — the sheer waste. Of everything.