It’s not just pricier car rides, beef and burritos. Inflation could sidetrack the economic recovery.
Fill up the car recently? Ouch!
Friday’s average pump prices for unleaded gasoline ran from $4.30 in L.A. to $4.29 in Orange County to $4.26 in the Inland Empire. Prices are up roughly 7 percent locally in a month and up about an equal amount from a year ago.
Who’s to blame?
Well, the key ingredient, crude oil, is pricier as global economies recover and generate greater demand. Local factors include both seasonal increase in demand as winter ended, as well as a growing regional economy. And spring is a time when refineries start juggling output to ramp up for cleaner, summertime fuel mixes – so supplies are often thin.
If that trip to fill up the tank doesn’t dent your wallet enough, you may wince when you visit your grocer to fill up your tummy. Prices for various edibles are way up as drought, disease and demand combine to severely test supplies.
Beef prices – above $5 a pound wholesale – are either at a record high or a 27-year high, depending on who’s counting. This meat has become costlier as cattlemen have shrunk herds after their expenses soared due to drought conditions in grazing areas. That came amid a growing global demand for beef.
Milk prices are up, too, to three-year highs. Dairy farmers also struggle with rising costs, due to the drought – as well as the temptation to bring dairy cows to slaughter as those beef prices rise. (Note: Parched farmland is also expected to soon push up the prices of vegetables, too.)
Bacon prices have jumped – also above $5 a pound – for a different reason: An odd illness is killing baby pigs and slashing supplies.
Similar issues haunt shrimp, which hasn’t cost this much since 1999. One government price index shows shrimp prices up 61 percent in a year. A sea illness is slashing harvests in Asia, creating steep supply shortages.
Curiously, inflation gauges aren’t catching the inflation buzz yet.
The Consumer Price Index for Southern California, for example, was up at a 1 percent annual rate in March – low by historical standards and in line with 2013’s 1.1 percent rise.
The gasoline slice of the CPI hasn’t seen the recent jump at the pump. In March, this pump-price marker was down at a 4 percent annual rate. You can bet that pattern will reverse soon.
Food costs, according to the local CPI, rose in March at a 1.6 percent annual rate – not an alarming surge but the biggest jump in 14 months. How can that uptick be so modest? The index reflects substitution possibilities, so you can skip beef and try chicken – at half the per-pound cost.
By CPI math, food at home rose at a meek 0.9 percent pace in the region. But the cost of eating out rose at a 2.4 percent annual pace, the fastest in 16 months.
Restaurant owners are feeling the cost pinch. For example, last week Chipotle – the fast-growing Mexican quick-serve chain – announced its first price hike in three years.
I’ll bet the food slice of the CPI is headed higher, too.
A significant rebirth of overall inflation – whether it’s anecdotal or within the CPI – won’t be good news for the economy.
A higher cost of living will further crimp consumers’ wallets and trim shoppers’ activity. Interest rates could rise, hurting borrowers and industries tied to heavy lending volumes, including real estate. Resurgent pricing would make the dual chores of the Federal Reserve more awkward as the nation’s central bank tries to lower unemployment while keeping inflation in check.
You could argue that this inflation picture is actually a good sign – a result of the rebounding economy creating price pressures while many corporations are financially secure enough to take the risk to raise prices.
But would that same inflation nudge bosses to raise wages – perhaps dulling the price-spike pain for shoppers?
Don’t bet on it.
Contact the writer: 949-777-6727 or jlansner@ocregister.com
