After years of inflation, US consumers are shouldering a burden unlike anything seen in decades —------------------------------------------
Inflation Is Making Americans Hate the US Economy
Inflation Is Making Americans Hate the US Economy
After years of inflation, US consumers are shouldering a burden unlike anything seen in decades — even as the pace of price increases has slowed.
It now requires $119.27 to buy the same goods and services a family could afford with $100 before the pandemic. Since early 2020, prices have risen about as much as they had in the full 10 years preceding the health emergency.
It’s hard to find an area of a household budget that’s been spared: Groceries are up 25% since January 2020. Same with electricity. Used-car prices have climbed 35%, auto insurance 33% and rents roughly 20%.
Those figures help explain why Americans continue to register strong dissatisfaction with the economy: Consumers’ daily routines have largely returned to their pre-pandemic normal, but the cost of living has not.
Hourly Real and Nominal Wages
After accounting for inflation, hourly wages have barely budged since 2020
Source: Bureau of Labor Statistics
And the government data reports that show easing inflation are cold comfort, because they simply indicate prices are growing at a slower pace, not that they are returning to early 2020 levels.
At the same time, housing affordability is at its worst on record, auto-loan rates have soared, and borrowing with a credit card has never been so expensive.
Many Americans have seen their pay rise rapidly since 2020, but much of those gains have been gobbled up by inflation. Some of the fastest wage increases in decades have left the average American largely no better off than before.
Consumers’ frustration with prices and elevated borrowing costs could help decide whether President Joe Biden wins a second term: Four in 10 swing-state voters in a recent Bloomberg News/Morning Consult poll said the economy was their top issue in the 2024 presidential election.
Here’s a look at how the cost to live in the US has changed in the past few years:
Groceries
In an October installment of the Bloomberg News/Morning Consult poll, more than half of voters in several key swing states pointed to grocery prices as the main way inflation had impacted them.
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Coffee
23% since 2020
-6% from 2016–2019
In the four years before the pandemic, grocery prices increased less than 1%, offering shoppers a certain predictability.
Even then, consumers occasionally saw price spikes for specific items due to drought, disease or natural disaster. But the nearly ubiquitous increases of the last few years — and the brisk pace — have been bewildering.
A pound of ground beef now costs $5.23 on average, up from $3.89 in January 2020. Coffee is up some $2 a pound. Prices for fresh fruits and vegetables are nearly 14% higher. At one point, the price of a carton of eggs was triple its pre-pandemic price.
Grocery prices for items, ordered by percentage increase since 2020. Illustration: Steph Davidson
Source: Bureau of Labor Statistics
“It’s a huge slap in the face and I’m surprised that some people are saying inflation’s coming down,” said Ryan Essenburg, 50, who lives in California’s Bay Area. “It’s hard. You go get your bill and it’s like, ‘What’s happening here?’”
In October 2020, a Census Bureau survey showed a four-person household spent an average of $238.32 in a week on food at home. Three years later, a similar survey showed that figure had jumped to $315.22 — roughly 32% more.
Grocery inflation is anticipated to return to less than 2% next year, but that might not offer consumers much relief.
“I don’t see any other way than food overall is going to be taking a higher share of people’s disposable income than before,” said Brandon McFadden, a professor in food policy economics at the University of Arkansas. “You can’t wiggle out of buying food.”
Housing
For most Americans, the cost of housing is by far the largest expense in any given month. As a result, the run-up in rental prices — which looks even more acute when using data from private companies like Zillow Group Inc. — has made it harder for many to save or have enough left over for other spending.
It’s also a difficult moment for renters to make the leap to homeownership. Mortgage rates are around a 23-year high, and home values have jumped nearly 42% since the start of 2020.
Housing Is Less Affordable for Renters and Buyers Alike
Sources: Zillow and Mortgage Bankers Association
Those who owned homes before the recent run-up in mortgage rates and prices have been shielded from one of the most dramatic impacts of inflation, and the appreciation in home values has markedly boosted their wealth.
It’s “like winning the lottery in hindsight,” said Skylar Olsen, chief economist at Zillow.
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Home Values
42% since 2020
24% from 2016–2019
But it’s not all roses for homeowners. The rapid climb in home equity has pushed up property taxes, and the surge in mortgage rates has prevented many of them from moving.
Anthony Ford, 35, bought a home shortly after paying his way through college. He and his girlfriend have looked at buying a larger place more suited for their needs, but based on their accounting, it would likely be five to six times their current housing payment.
“I bought a very modest house and did all these things that we felt like we were supposed to do, like live within our means, don’t overspend, save. And it all just keeps getting further away from being able to take that next step,” said Ford, an analytics engineer outside of Dayton, Ohio.
Routine Bills
Americans haven’t gotten any respite from their other bills either. Electricity bills have climbed 25% since January 2020, and natural gas is up 29% in the same time period. And like inflation more generally, jumps in electricity prices have been uneven across states and regions.
Electricity Bills Rising Fastest in California and Maine
Change in average residential electricity prices from August 2019 to August 2023, by state
Note: August 2023 is the most recent state-level data available. The data are not seasonally adjusted, so same-month comparisons are needed to draw meaningful conclusions.
Source: US Energy Information Administration
Car insurance is up 33%, and the combination of higher car prices and a surge in borrowing costs has pushed the average monthly payment for a new car to a record high of $736. According to Edmunds, a record 17.5% of consumers financing a new vehicle are now paying $1,000 or more a month.
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Car insurance
33% since 2020
21% from 2016–2019
“I feel like I’m on a hamster wheel that’s just — I’m not getting ahead ever,” said Tamarah Victor, 33, of Needham, Massachusetts.
As of 2022, the average annual cost of child care nationally was $10,853, according to data from Child Care Aware of America, with prices varying by state. And as of September, average monthly child care payments were 32% higher than the 2019 average, according to internal data from Bank of America.
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Child care
32%* since 2019
Health care, already expensive in the US, has become even more so. Along with paying higher prices to visit the dentist or the hospital, data from an annual KFF survey showed the average employer-sponsored health insurance premium jumped to almost $24,000 this year. Nearly 40% of Americans have delayed or skipped needed health care in the past year because they couldn’t afford it.
One routine purchase where many consumers are getting some reprieve as of late is gasoline, with prices falling steadily since mid-September after soaring to around $5 a gallon last year, according to the auto association AAA. Even so, at $3.31 a gallon nationally as of Nov. 20, gasoline remains a strain on household budgets — especially given prices are still nearly $1 higher than the five-year average leading up to the pandemic.
Borrowing costs, too, have become more expensive. For years, credit has been relatively easy to come by in the US, helping Americans buy big-ticket items like cars and homes while also keeping a lid on monthly interest payments.
Now, the share of Americans’ wages that they’re putting toward interest payments for things like cars and credit cards is at levels not seen since 2007 — and not too far from all-time highs. Delinquency rates are climbing rapidly as a result.
Leslie Shuffleton, a personal trainer in Palm Desert, California, had no other debt besides a mortgage payment heading into the pandemic. Since then, the combination of investing in her business while shouldering a sharp Covid-driven slowdown, plus rising prices and property taxes, has driven her family to accumulate some $75,000 in debt.
She’s been shuffling that money on new credit cards since, trying to avoid the surge in borrowing costs, while she waits for her stock holdings to increase in value.
“I absolutely want to make sure that when that promotional rate is over, that I have the ability to shuffle it over to another card for a promotional rate again,” Shuffleton, 54, said. “It’s just a real circus, and it’s a real dance that I would like to not have to do.”
Small Luxuries
As big financial goals like buying a house appear increasingly out of reach, some Americans are shifting their economic aspirations to smaller luxuries.
The problem is that costs for many of these items have increased, too. Besides airline fares, which have actually fallen slightly compared to January 2020, it’s gotten more expensive to travel, with hotel prices up 15%.
Meanwhile, restaurant prices are up 24% since January 2020 — a figure that doesn’t even include the optional tips that touchscreen checkout systems often nudge diners to add.
Restaurants Pass Higher Costs Onto Customers
Menu price changes from Q1 2020 to Q3 2023
Note: Data based on 459 operators of top 500 chain restaurants by sales.
Source: Data compiled by Technomic
When consumers are already being squeezed by higher costs for necessities, it can be especially difficult to splurge. A recent survey by the polling firm Global Strategy Group showed half of respondents reported not being able to afford going out to a restaurant. Two-thirds said they couldn’t afford a vacation.
“That’s a lot harder to do when your energy bill keeps ticking upwards and every time you go to the grocery store, it’s so much more than you anticipated,” said Matt Canter, a partner at Global Strategy Group. “Unfortunately, this data suggests that is the experience that more and more Americans are having.”
Savings
An oft-cited silver lining of the pandemic economy was that consumers up and down the income ladder were able to build a savings cushion. While richer Americans saved the most, the unprecedented surge in government support — from expanded unemployment benefits to stimulus checks — provided lower-income households the opportunity to save as well.
But there are signs that padding is getting thinner. Many households dug into savings over the summer, and the distribution of savings remaining is highly uneven. Roughly two-thirds of total deposits as of mid-2023 were held by the top 20% of earners.
The Federal Reserve Bank of San Francisco had previously estimated excess savings — or extra savings relative to the pre-pandemic trend — would be fully depleted this year, but revised figures show that’s not likely to be the case until 2024. But it’s not because families saved more than previously thought during the pandemic, it’s because they saved less before Covid-19.
Savings Rose Across Incomes, Even if Jumps Were Uneven
Quarterly deposits and short-term investments, by income percentiles
Note: Based on holdings of deposits, defined as checkable deposits and currency plus time deposits and short-term investments.
Source: Federal Reserve Distributional Financial Accounts
Price increases have eroded the value of those savings, though. A Bloomberg News analysis of Federal Reserve data showed that, after adjusting for inflation, the level of bank deposits and other liquid assets were lower in June than they were in March 2020 for the vast majority of households.
In October, student-loan payments resumed after a years-long pause, potentially leaving households even less room to save.
All of that has many families feeling stretched, with an increasing number withdrawing from their retirement savings while also contributing to an annual increase in credit-card balances last quarter that was the largest in New York Fed data back to 1999.
While wages are now rising faster than prices, a sense of reprieve for consumers is likely not imminent. Central bank policymakers are tilted toward keeping interest rates higher for longer, meaning borrowing costs will likely remain startlingly expensive in the near term. The October jobs report showed a notable cooling in the labor market, with unemployment ticking up to an almost two-year high of 3.9%.
“The reality is setting in for consumers that prices rarely go down, especially not in the aggregate. And so really the best they can hope for is prices leveling off and — at the very least — growing at a slower rate,” said Sarah House, senior economist at Wells Fargo & Co. “Hopefully they level off and give a chance for incomes to continue to grow.”
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