Worried About Inflation? Move to Alaska, Sell the Car and Become a Vegetarian

Back in 2022, Federal Reserve Chairman Jerome Powell took a roasting from politicians and consumers alike as he continued to claim inflation was “transitory.”

Turns out he may have been right – only now it is transiting downward.

Twin readings this week – one on consumer prices and the other on wholesale inflation – suggest that, though there is still a way to go, prices are continuing to cool off from the 9% annual increase of last year. The consumer price index for October showed inflation at a 3.2% level, while the producer price index came in with an annual rate of 1.3%.

“I think the most important observation we’ve made is that the worst of the inflationary environment is behind us,” Home Depot Chief Financial Officer Richard McPhail told investors on Tuesday.

Walmart chimed in on Thursday, echoing the theme that inflation has turned a corner. Because of its massive geographic reach and broad range of products offered, the company serves as a great barometer of consumer behavior.

“In the U.S., we may be managing through a period of deflation in the months to come. And while that would put more unit pressure on us, we welcome it because it’s better for our customers,” CEO Doug McMillon said in a call discussing the company’s quarterly earnings. Notably, McMillon said prices for some categories of groceries such as eggs, chicken and seafood had fallen.

But even that positive news may not sit well with consumers who have seen a compounded increase in prices of about 18% over the past three years.

“People don’t have a one-year memory, they remember what prices were like in 2019,” says Kayla Bruun, senior economist at data intelligence firm Morning Consult.

And that’s why, in most polls, Americans cite inflation as their top concern. It also explains why President Joe Biden continues to receive low marks for his handling of the economy despite record job growth, an economy that grew at a 4.9% rate in the third quarter, and wage growth that is currently outstripping the overall rate of inflation.

But Biden’s message is apparently not getting through – even as inflation has fallen by about two-thirds during the past 15 months or so.

“Inflation will reach levels never before witnessed in U.S. history,” a respondent to the October Freedom Economy Index conducted by job site RedBalloon said.

That would be some doing. The highest inflation recorded in the U.S. occurred in 1778, when it came in just under 30%. The highest in the CPI era was in 1917 at 20.5%.

Perhaps the most interesting and relevant facts about inflation are that the overall number means little to the average person. Inflation is more about the individual experience.

The broadest and most common measure of inflation is the consumer price index, a basket of goods and services meant to reflect an economy that is driven largely by consumer spending. Some economists question how valid the CPI is in an economy that has transitioned from dominance by manufacturing to services, and even the Fed pays more attention to a different measure.

“There are imperfections in the CPI basket,” says Tony Welch, chief investment officer at Signature FD. “One of the biggest changes in the economy from the 1950s and 1960s has been the transition from manufacturing to services.”

In particular, the CPI is full of data points that often reflect trends that consumers have a hard time understanding. And while monthly changes can seem anomalous at first blush, the most recent monthly report provides plenty of examples of just how fickle inflation can be at a given point in time.

The highest month over month increase came in the category of admission to sporting events, where prices soared 25.1% from a year ago. It might have paid to stay home instead and watch the New York Jets lose, as the cost of a TV fell 9.4% in October from a year ago.

Falling gasoline prices – now down to $3 a gallon across the country – were a big help in bringing inflation down in October, dropping about 5% overall from 2022 levels. The cost of shelter, however, continued to be a major cause of higher inflation. Even there, though, there was some reason to be optimistic.

“Although the overall consumer price level was flat in October, shelter inflation continued,” said Danielle Hale, chief economist for Realtor.com. “Shelter costs rose 6.7% over this time last year. This is not only down slightly from the 7.3% gain in August and 7.2% in September, it is the smallest gain for shelter since September 2022.”

However, eagle-eyed pessimists will point out that is close to double the 3.5% annual rate of increase common in the pre-pandemic period.

“To me, the story is about different income levels,” says Shawn Ashworth, managing director at Berkeley Research Group, a retailing consultancy. “The lower income consumer is still paying a higher share of wallet for housing, food and insurance.”

But, Ashworth adds, middle and higher income consumers are likewise shopping for deals, taking advantage of promotions and trading down a notch to discount brands.

“If you think about luxury goods, it doesn’t mean you’re willing to pay any price,” he adds.

It’s hard to do without the necessities of life, but even there one can make adjustments in order to save money. And there is evidence consumers are already pulling back in the face of increasing prices. Target said this week its third-quarter sales at stores open a year fell 4.9%. TJX, a company that caters to budget-conscious customers with its Home Goods, Marshalls and T.J. Maxx stores posted results that included a 9% pop in same-store sales.

Fancy a nice, juicy ribeye on the grill? That will cost you. Steak prices are up 10.6%. But trading down to a pork chop will save some money as those prices only went up by 4.3%.

It might be worth ditching meat entirely and becoming a vegetarian. Fresh vegetable prices slipped 2.2% while the cost of beans and lentils only increased by 1.1%.

If that weekend dinner is accompanied by an adult beverage, then choose carefully. Beer prices rose 4.7% last month, but whiskey by 3.1%. Wine was only up 1.1%, though the data did not delineate between red or white or even rose.

Where you live matters – a lot. That South Florida lifestyle of palms and sandy beaches is not for the light of wallet. Overall inflation among select urban areas was highest in the Miami to West Palm Beach corridor, up by 7.4% in October. But at least you will have Jeff Bezos as a neighbor. Residents of Anchorage, Alaska, have it easier. Their inflation rate was 1.1%.

While lifestyle and residence can affect the prices you pay, so can gender.

Men’s suits fell in price by 3.8%. Suits for women, however, were up by 2.8%. Men’s footwear prices edged up by 0.8%, but women’s shoes were 1.8% more expensive.

Fancy a new truck? The good news is that prices only rose 2% last month. The bad news? Auto insurance rates increased 19.2%.

It was cheaper to go to the doctor as physician’s visits came in 1.2% less. But if you get a bad diagnosis, brace yourself. The cost of a funeral rose by 4.7%.