ASHLAND, N.J. (CBS) — There’s good news and bad news when it comes to your wallet. As some inflation-hiked items costs have started to fall, eggs are one item where prices have remained high.
Data from the Labor Department shows that eggs have seen the biggest monthly and yearly price hike of any other grocery item. That has some shoppers are skipping the store and heading to the farm.
We need to talk about how the price of eggs is up 59.9% from a year ago and 11.1% in December alone. Price of butter is up 31.4% too
— Sarah Ewall-Wice (@EwallWice) January 12, 2023
At the family-owned and operated Arnie’s Gourmet in Ashland, New Jersey, eggs are a staple.
“We go through 2,000 meatballs a week. They use a lot of eggs,” manager Mark Madrigale said. “We make homemade quiche, egg salad. A lot of our cold salads contain eggs. So, there are a lot of eggs in our stuff, and we can see how that’s affecting our bottom line a little bit.”
It’s not only their bottom line that’s being impacted. Shoppers like Colleen Hadden are also feeling it.
“Overall, our grocery bill is going up a bit,” Hadden said.
The U.S. Bureau of Labor Statistics says eggs are nearly 60% more expensive than last year.
“Overall, they definitely have increased a lot,” Hadden said, “and I have three boys and they love their full breakfast on the weekends of scrambled eggs and everything so I might be making other options for breakfast now.”
On average, Arnie’s buys 1,000 or so eggs each week to keep up with the demand from shoppers, but they say they’re trying their best to not hike up their prices for their customers.
“They went up to $5.99 a couple years ago and they’re approaching $6.99 and that’s basically what they cost us to get the good eggs in,” Madrigale said. “We don’t want to raise our prices anymore from $6.99 for a dozen eggs.”
“For an organic dozen, I would say it’s great,” Valerie Pelerin said. “I would say this is about what you’re going to pay at any of the other supermarkets today.”
For some like Hadden, they’re skipping out on the store-bought eggs altogether.
“My sister has chickens in Morristown not too far away,” Hadden said. “So, it’s always good to know someone that you can get some fresh eggs from too, especially now.”
It’s just one way that shoppers are making it work with higher food prices.
Marcella Baietto
Marcella Baietto is a bilingual reporter with CBS3 Eyewitness News. She’s originally from Phoenix, Arizona, but considers El Salvador her second home since much of her family still lives there.
Inflation eases, but costs of eggs, other groceries still up
Inflation eases, but costs of eggs, other groceries still up
00:29
The rising cost of eggs in the U.S. is denting household budgets. Americans in recent years have increased the number of eggs they consume while reducing their intake of beef and venison, according to data from the U.S. Department of Agriculture.
Egg consumption has grown in part because more families are eating them as their main protein substitute, Los Angeles Times reporter Sonja Sharp told CBS News. “Each of us eats about as many eggs as one hen can lay a year,” she said.
As demand for eggs has risen, production in the U.S. has slumped because of the ongoing bird, or “avian,” flu epidemic. Nearly 58 million birds have been infected with avian flu as of January 6, the USDA said, making it the deadliest outbreak in U.S. history. Infected birds must be slaughtered, causing egg supplies to fall and prices to surge.
Egg prices in December rose 60% from a year earlier, according to Consumer Price Index data released Thursday. Across U.S cities, the average price for a dozen large grade A eggs was $4.25 last month, according to figures from the Federal Reserve Bank of St. Louis.
In some states, it can even be hard to find eggs on the shelves. But egg supplies overall are holding up because the total flock of egg-laying hens is only down about 5% from from its normal size of around 320 million hens. Farmers have been working to replace their flocks as soon as they can after an outbreak.
Sharp said prices will likely not fall again until after new chickens are born without the infection and grow to egg-laying age. More than 300 flocks of farm-raised poultry have been hit by the outbreak as of last Friday, according to USDA data.
In New York, grocery store owner Jose Filipe said that soaring egg costs have caused many customers to change their spending habits.
“I’ve seen customers gravitate from buying organic eggs now to more conventional eggs, and specifically now, the half dozen. Prices have quadrupled in about six or seven months,” he recently told CBS New York’s Jenna DeAngelis.
What is avian flu?
Bird flu is carried by free-flying waterfowl, such as ducks, geese and shorebirds, and infects chickens, turkeys, pheasants, quail, domestic ducks, geese and guinea fowl. In another major recent epidemic of the disease, it killed more than 50 million chickens and turkeys in 2014 and 2015, while causing economic losses of $3.3 billion, the USDA estimates. The agency is now researching a potential vaccine against the bird flu.
Fortunately, the public health risk related to bird flu remains low, according to the U.S. Centers for Disease Control and Prevention. Still, cooking all poultry and eggs to an internal temperature of 165 ˚F is advised as a general food safety rule.
The cost of processed eggs — used in liquid or powdered form in manufactured products including salad dressing, cake mix and chips — has also surged, adding to inflationary pressures.
Inflation cooling
The Consumer Price Index — a closely watched inflation gauge — rose 6.5% in December from the previous year. That was the smallest annual increase since October 2021, the Labor Department reported Thursday and continues the steady decline in price increases since they peaked at 9% in June of last year. Falling prices for energy, commodities and used cars offset increases in food and shelter.
But if eggs remain pricey, Chicago resident Kelly Fischer said she will start thinking more seriously about building a backyard chicken coop because everyone in her family eats eggs.
“We (with neighbors) are contemplating building a chicken coop behind our houses, so eventually I hope not to buy them and have my own eggs and I think the cost comes into that somewhat,” the 46-year-old public school teacher said while shopping at HarvesTime Foods on the city’s North Side. “For me, it’s more of the environmental impact and trying to purchase locally.”
Eggs are just one of a number of food staples that skyrocketed in price in 2022. For example, margarine costs in December surged 44% from a year ago, while butter rose 31%, according to the CPI data.
—The Associated Press contributed to this report
Khristopher J. Brooks
Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
Workers who stay put in their jobs are getting their heftiest pay raises in decades, a factor putting pressure on inflation.
Wages for workers who stayed at their jobs were up 5.5% in November from a year earlier, averaged over 12 months, according to the Federal Reserve Bank of Atlanta. That was up from 3.7% annual growth in January 2022 and the highest increase in 25 years of record-keeping.
Faster wage growth is contributing to historically high inflation, as some companies pass along price increases to compensate for their increased labor costs. Prices rose at their fastest pace in 40 years earlier in 2022. Inflation has cooled in recent months but remains high. Federal Reserve officials are closely monitoring wage gains as they consider future interest-rate increases to slow the economy and bring down inflation.
Employees who changed companies, job duties or occupations saw even greater wage gains of 7.7% in November from a year earlier. The prospect that employees might leave for bigger paychecks is a main reason companies are raising wages for existing employees.
Many workers aren’t feeling the pay gains, though. Wages for all private-sector workers declined by 1.9% over the 12 months that ended in November, after accounting for annual inflation of 7.1%, according to the Labor Department.
Workers in sectors such as leisure and hospitality can easily find job openings that might pay more, making it more enticing to switch jobs, said
Layla O’Kane,
senior economist at Lightcast.
“If I can see that the Burger King down the street is offering $22 an hour, and I’m making $20 an hour at the Dunkin’ Donuts that I work at, then I know very clearly what my opportunity cost is,” she said. “Employers are reacting to that and saying, ‘Well, we’re going to increase wages internally because we don’t want to lose the staff that we’ve already trained.’”
Employee bargaining power has increased as the economy rebounded from the pandemic, likely emboldening some employees to ask for wage increases from their current employers, Ms. O’Kane added.
Alexandria Carter,
a billing specialist and accountant at an insurance company in Baltimore, received a promotion and a small pay bump earlier in 2022. After her year-end performance review, she received another 7% pay increase to reward her for her progress, and her bosses told her about their plans for her to keep moving up in the company.
That was a contrast with some previous jobs she has held, where praise and pay raises were less forthcoming.
“They were telling me that I’m excelling in my position, and I just got it,” she said. “To have that recognition and that they notice the work I’ve put in and to be rewarded, it’s just nice.”
Alexandria Carter, a Baltimore billing specialist and accountant, got a promotion and two pay increases this past year.
Photo:
Alexandria Carter
There are signs wage gains are beginning to ease as the tight labor market loosens a bit. Average hourly earnings were up 5.1% in November from a year earlier, slowing from a recent peak of 5.6% in March. Many analysts expect wage growth could cool further in coming months.
In industries with high demand for workers, “companies are prepared for wage growth to match inflation,” said
Paul McDonald,
senior executive director at Robert Half, a professional staffing company. “As inflation comes down, it will be more in line with what wage growth has been.”
The consumer-price index, a measurement of what consumers pay for goods and services, climbed 7.1% in November from a year earlier, down from 7.7% in October. The pace built on a trend of moderating price increases since June’s 9.1% peak.
Still, wage pressures will likely continue in a competitive job market where poaching remains common. More than half of professionals feel underpaid, and four in 10 workers would leave their jobs for a 10% raise elsewhere, according to a Robert Half survey released in September.
Famous Toastery, a Charlotte, N.C.-based breakfast, brunch and lunch chain, is raising pay faster than ever before, said
Mike Sebazco,
the company’s president. Across the eight company-owned locations, wages for existing kitchen staff members are up about 15% from a year earlier.
“We didn’t want to be as easy to poach,” he said. It isn’t uncommon for managers from other companies to come to Famous Toastery’s dumpster pads to tell the breakfast chain’s workers, “‘Hey, come work for me, and I’ll give you an extra $2 an hour,’” Mr. Sebazco said.
To help coverhigher labor costs, Famous Toastery raised menu prices in August for items such as the Western omelet composed of ham, roasted peppers, caramelized onions and American cheese.
“Bacon and eggs and a lot of produce items will go up and down, and you can weather that,” Mr. Sebazco said. “We’ve never really experienced labor increases such as this.”
Many businesses in the Boston Fed district cited labor costs as a bigger source of inflationary pressure for 2023 than other types of expenses, according to the central bank’s collection of business anecdotes known as the Beige Book.
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Most business executives remain confident that they can pass along wage increases to consumers in the form of higher prices, said
Lauren Mason,
senior principal at consulting firm Mercer LLC. “This makes compensation investments somewhat easier to absorb,” she said.
Wage and price increases can feed off each other. In fact, higher inflation is pushing some workers to seek cost-of-living increases, helping contribute to wage growth among job stayers, economists say.
More broadly, pay is rising for both job stayers and switchers because companies can’t find enough workers. Across the economy, job openings—at 10.3 million in October—far exceeded the 6.1 million unemployed Americans looking for work that month.
Companies are using merit-pay increases to hold on to employees and minimize the potential productivity drain of recruiting and training new hires. Firms are budgeting more for merit-pay increases in 2023 than they have in 15 years, according to a Mercer survey of more than 1,000 companies.
Daniel Powers,
a recent college graduate, received a 10% year-end raise at a management consulting firm in Chicago, after starting out with a six-figure salary when he was hired in September.
“They understand the realities of the market—there’s no false illusion of, ‘we’re family here,’” Mr. Powers said of his firm’s management.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com and Sarah Chaney Cambon at sarah.chaney@wsj.com
Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.
“It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.
“The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.
Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index
SPX,
+0.92%
closed 5.9% higher for the week.
The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.
Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.
“We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.
“We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.
The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.
Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.
The 7.7% inflation rate seen in October “is enormous,” he added.
The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.
The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.
“We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.
The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.
At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.
“The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.
In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.
U.S. consumer inflation accelerated to 9.1% in June, a pace not seen in more than four decades, adding pressure on the Federal Reserve to act more aggressively to slow rapid price increases throughout the economy.
The consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981, the Labor Department said on Wednesday. A big jump in gasoline prices—up 11.2% from the previous month and nearly 60% from a year earlier—drove much of the increase, while shelter and food prices were also major contributors.
The June inflation reading exceeded May’s 8.6% rate, prompting investors and analysts to debate whether the Fed would consider a one-percentage-point rate increase, rather than a 0.75-point rise, later this month. Slowing demand is key to the Fed’s goal of restoring price stability in an economy that is still struggling with supply issues, but raising interest rates also elevates the risk of a recession.
Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.
As inflation climbs in the U.S., rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. WSJ’s Gwynn Guilford explains how the consumer-price index works and what it can tell you about inflation. Illustration: Jacob Reynolds
On a month-to-month basis, core prices rose 0.7% in June, a bit more than their 0.6% increase in May—a sign of inflationary pressures throughout the economy.
“Inflation makes everything difficult,” said
Lara Rhame,
chief U.S. economist for FS Investments. “It erodes your savings, your wages, your profits. It’s punishing everybody.”
Stocks declined on Wednesday after wavering for much of the day, with the S&P 500 index falling by 0.5%. Bond yields jumped following the inflation report, but yields on longer-term Treasurys quickly gave up those gains.
Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.
Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.
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“There’s a pretty serious recession fear affecting a broad range of asset prices,” said
Laura Rosner-Warburton,
senior economist at MacroPolicy Perspectives.
Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.
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“It would be really important if we do see discounting return, because it would show that we weren’t that far away from the pre-Covid environment in terms of pricing behavior,” Ms. Rosner-Warburton said.
Discounts haven’t shown up prominently in inflation figures so far: Prices for apparel and home goods both rose last month. New and used car price increases, a significant source of upward pressure on inflation, both eased on a month-to-month basis in June.
The Fed last month raised its interest-rate target by 0.75 percentage point, the largest increase since 1994. Besides tempering demand, the central bank is trying to prevent consumer expectations of higher inflation from becoming entrenched, as such expectations can be self-fulfilling. Fed Chairman
Jerome Powell
has said the central bank wants to see clear evidence that price pressures are diminishing before slowing or suspending rate increases.
Persistent high inflation is putting a strain on businesses and consumers who, after decades of price stability, aren’t used to it.
Dan Waag,
55 years old, the owner of Arlene’s Sunny Side Cafe in Alcester, S.D., made the difficult decision to close for a week after concluding that a drop in the number of customers was leaving the restaurant’s finances in the red.
“I know these are tough times with this inflation, little to no rain for the farmers, gas prices as high as they are,” he wrote to his customers on Facebook.
Mr. Waag attributes the slowing demand to a poor season for the corn and bean farmers in the area, and the added toll of higher gasoline prices that might make an outing to his restaurant an unaffordable luxury. He hasn’t changed his prices yet, but with his own rising costs and a drop in daily revenue from around $600-$700 to $300-$400, he feels he may have to soon.
High inflation and a poor farm season have driven Dan Waag to close Arlene’s Sunny Side Cafe in Alcester, S.D., for a week.
Photo:
Dan Waag
By closing for a week, he said he is betting customers will realize the value of having a non-fast food restaurant in their town of around 800 people. “I’m trying to show people, ‘This is what it will be like if I have to stay closed,’ ” Mr. Waag said.
Consumer inflation expectations have improved somewhat, according to a Federal Reserve Bank of New York survey this week. Americans expect slower inflation increases over the longer run than they had in recent months. The bank said in its June Survey of Consumer Expectations that respondents see the annual inflation rate three years from now at 3.6%, down from their expectation in May of 3.9%. The bank also said respondents expect the annual inflation rate five years from now to be 2.8%, down from their May expectation of 2.9%.
Higher interest rates won’t have the same effect on all prices simultaneously, economists say. Costs such as mortgages and rents—a big part of household budgets—respond over time to the demand-sapping effects of higher interest rates. Shelter costs rose by 0.6% in June over the prior month, the same rate as they did in May. The rent index rose 0.8% over the month, which was the largest monthly increase since April 1986.
Housing inflation is important because it represents around 40% of core CPI and around 17% of the Fed’s preferred inflation gauge, the personal-consumption expenditures price index.
“High rents are really troubling because they’re locked in once every year or once every two years, and that’s what leads people to go ask their boss for higher wages,” said Ms. Rhame.
Wages aren’t keeping up with inflation. With annual wage growth at 5.1%, average hourly earnings adjusted for inflation are declining at their fastest pace in four decades. After accounting for seasonal and inflation adjustments, average hourly earnings decreased 3.6% from June 2021 to June 2022.
Record home prices and higher mortgage rates in May made it the most expensive month since 2006 to buy a home. Those conditions are leading prospective buyers to drop out of the market for now. But with limited supply and continued demand, it may take months before housing prices see significant declines.
“We entered this year with so much more demand than supply—even with many home buyers unable to compete in the market, there’s still a lot of buyers,” said
Bill Adams,
chief economist at Comerica Bank.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com
U.S. consumer inflation reached its highest level in more than four decades in May as surging energy and food costs pushed prices higher, with little indication of when the upward trend could ease.
The Labor Department on Friday said that the consumer-price index increased 8.6% in May from the same month a year ago, marking its fastest pace since December 1981. That was also up from April’s CPI reading, which was slightly below the previous 40-year high reached in March. The CPI measures what consumers pay for goods and services.
May’s increase was driven in part by sharp rises in the prices for energy, which rose 34.6% from a year earlier, and groceries, which jumped 11.9% on the year, the biggest increase since 1979. But inflation pressures were distinctly broad-based in May, said
Sarah House,
senior economist at Wells Fargo Securities.
“Given everything from the implications of the Russian invasion of Ukraine, the Chinese lockdowns and just the sheer appetite for travel…what we’ve seen is the perfect storm of those factors hitting, along with some major refinery closures,” she said. “Inflationary pressures were seen nearly everywhere.”
U.S. stocks fell sharply and the yield on the benchmark 10-year U.S. Treasury note rose after the release of the inflation figures.
Prices for used cars and trucks—a key engine of the past year’s inflation surge—rose 1.8% in May from April, reversing three months of declines. Shelter costs, an indicator of broad inflation pressures, accelerated on a monthly basis in May and were up 5.5% compared with a year ago.
Airline fares rose 12.6% on the month, the third straight double-digit rise.
“We suspect that the formidable momentum in inflation could push the headline rate for CPI close to 9% as early as next month,” said Ms. House, adding that it is likely to stay near those levels through the autumn.
The May inflation figures came as consumer sentiment soured further on the economy. The preliminary estimate of the consumer sentiment index published Friday by the University of Michigan fell to 50.2 in June from 58.4 in May, marking its lowest reading on record. Nearly half of those surveyed attributed their negative views to inflation, up from 38% the prior month.
High inflation is a downside of strong U.S. growth, fueled in part by low interest rates and government stimulus to counter the Covid-19 pandemic’s impact. The annual rate of inflation has risen sharply since early 2021, when the U.S. economy’s rebound from the pandemic accelerated, leading to supply disruptions and other imbalances that put upward pressure on prices for longer than policy makers anticipated.
The Federal Reserve faces the difficult task of tightening monetary policy enough to cool the economy and calm inflation, while avoiding a recession. Fed officials on May 4 lifted rates by a half-percentage point and will meet again next week to consider a similar increase.
How Prices Climbed in May
Here’s a look at how much more consumers are paying for goods and services than they were a year ago.
Economists and policy makers had been watching closely for signs that inflationary pressures are ebbing. But May’s resurgence in price increases ratchets up pressure on the Fed to raise rates aggressively to tame inflation, said
James Knightley,
chief international economist at ING.
“The breadth of inflation pressures in the economy should alarm the Fed,” he said.
On a monthly basis, the CPI jumped a seasonally adjusted 1% in May after rising 0.3% in the prior month. The so-called core-price index, which excludes the often volatile categories of food and energy, increased 0.6% on the month, the same as in April. That compares with an average monthly gain of 0.2% for both measures in the two years before the pandemic.
On a 12-month basis, the core-price index increased 6% in May, down from 6.2% in April. March’s 6.5% rise was the highest rate since August 1982.
Where in Americans’ household budgets is inflation hitting the hardest? WSJ’s Jon Hilsenrath traces the roots of the rising prices to learn why some sectors have risen so much more than others. Photo Illustration: Laura Kammermann/WSJ
Inflation was highest in the South, at 9.2%, and the Midwest, where prices rose 8.8%. Residents of the Tampa-St. Petersburg-Clearwater area of Florida swallowed an 11.3% increase over the 12 months ended in May, driven in part by a sharp rise in rental prices. Inflation was just 6.3% in the New York City metropolitan area, due in part to relatively low rental-price gains.
Energy prices rose in May as Russia’s invasion of Ukraine continued to push up prices for crude-oil and natural gas. Gasoline prices have breached record levels in recent weeks, with the average gallon of regular unleaded currently going for $4.97, according to AAA. The strength in energy price rises will keep putting upward pressure on inflation, said Ms. House, the Wells Fargo economist.
Consumers’ grocery bills have risen by an annual rate of more than 10% since earlier this year, a pace last seen in the early 1980s. Food prices are unusually broad, and every single grocery category measured in the report rose in May from a year ago—most of them by double-digits. There are numerous causes, unlike early in the pandemic when meat prices drove much of the increase, said
Paul Ashworth,
chief North America economist at Capital Economics.
“It’s not just the weather—it’s diseases affecting citrus trees and chickens. It’s the Ukraine conflict,” which has affected prices for baked goods and cereals, he said. Drought, too, is hitting prices for vegetables and other crops.
“For people on lower incomes this is not discretionary spending,” Mr. Ashworth said. “Other than substituting out cheaper food types—cheaper meat cuts, whatever it might be—people need to continue buying food.”
Price pressures are strong across much of the economy in part because of an unusually tight U.S. labor market, with demand for workers outstripping supply. Employers added 390,000 jobs last month, and the unemployment rate hovered near a half-century low. Still, even after the economy gained more than 6.5 million jobs in the space of a year, fewer Americans are employed as a share of the population than before the pandemic.
Those dynamics are driving wage growth, adding to inflationary pressures. Strong gains in wages and hiring are pumping more money into Americans’ bank accounts, propping up demand as inflation erodes spending power for many. Meanwhile, higher labor costs stemming from worker shortages are prompting many employers to raise prices.
Demand for travel and other services has surged as the impact of Covid-19 recedes and people spend more freely on experiences they missed out on during the worst of the pandemic. This is pushing up prices for these services. Airline fares surged 37.8% from a year ago, while hotel prices were 19.3% higher. Restaurant prices rose 7.4%, the sharpest rise since 1981.
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Despite strong demand for summer activities such as travel, higher prices are eating into many business owners’ profitability. In early 2020, Suzanne Hoffman, an author who runs wine tours in Italy, canceled group tours to Piedmont because of the pandemic. A number of guests rolled over their deposits and are finally taking their trips this summer.
“The demand is there; people are just chomping at the bit,” said Ms. Hoffman, who is based in Edwards, Colo.
But the people taking those long-delayed trips are paying 2019 prices, she said, while fuel, dining and other costs to conduct the tours have gone up. That is hurting Ms. Hoffman’s bottom line to the extent that she might stop running future tours given the uncertain outlook.
“I canceled my October tour. I just don’t want to make any commitments beyond this summer,” she said.
Some main drivers of inflation could be easing.
The backlog in cargo ships waiting to unload in Los Angeles and Long Beach, Calif., fell for the fourth straight month in May, said
Oren Klachkin
of Oxford Economics.
Target Corp.
recently said the need to unload unwanted goods would cause its profit to drop. Clothes retailers have also been caught with swelling inventories of casual clothes and home items as shoppers scaled back spending on goods that had been popular throughout the pandemic.
But supply bottlenecks are easing too slowly and too sporadically to ease inflationary pressures, economists say. Energy disruptions caused by the Ukraine war and the lack of workers to fill vacancies in the U.S. are exacerbating strains on the economy’s ability to meet demand without price rises.
The breadth and persistence of these supply problems means that for inflation to ease, demand must come down, said Mr. Knightley of ING. “To get demand into better balance with the supply the onus is on the Federal Reserve to do the heavy lifting,” he said.
Lettuce Entertain You Enterprises Inc., a Chicago-based restaurant group, has added a 3% “processing fee” to checks at many of its restaurants.
Harley-Davidson Inc.
added a charge last year to its motorcycles to cover rising material costs.
Peloton Interactive Inc.
in January began charging $250 for delivery and setup of some of its indoor bikes, a service that was previously included free.
Companies are finding all kinds of ways to make consumers pay for rising costs. Often that is not reflected in the posted price.
The Labor Department’s consumer-price index, which measures how much consumers pay for goods and services, rose to 7.5% in January compared with the same month a year earlier—the biggest rise since February 1982.
The index accounts for some changes that raise consumers’ costs, such as smaller package sizes and some fees attached to hotel packages or car purchases. But it can miss other ways in which dollars don’t stretch as far– a hotel that changes sheets only between guests, a theme park that cancels its free airport shuttle, or an auto dealer that requires customers to buy a protective paint coating with a car.
With supply-chain challenges, pent-up demand and a tight labor market leading to inflation, businesses are looking for subtle ways to pass along rising costs. Particularly in the food business, companies have long used what the industry calls weight-outs, or shrinking package contents instead of raising prices, during economic distress periods such as the 2007-2009 recession.
“There is a lot more to come,” said
Doug Baker,
head of industry relations for FMI, a food-industry trade organization. “Everything is on the table in an effort to deal with those cost increases, and at the same time, not make it too difficult for consumers to shop.”
A global computer-chip shortage has reduced vehicle inventories just as Americans were buying cars in record numbers, pushing up prices for new vehicles. In many cases, they are selling for thousands of dollars above manufacturers’ suggested retail prices, said Tom McParland, founder of Automatch Consulting, which helps consumers find vehicles.
“They’re calling it a market adjustment fee,” said Mr. McParland. “That’s the new thing they are doing: hiding markups with substantially overpriced accessories like mud flaps and cargo protectors.”
Ford Motor Co.
and
General Motors Co.
have said they are cracking down on dealerships using that tactic.
Harley fees
Base prices on Harley-Davidson’s motorcycles haven’t gone up much in recent years, the Milwaukee company said. But to cover rising costs, it added a mandatory materials surcharge last year, which dealers are passing on to customers. Dealers said the fee, which varies based on the model, is easier for the company to adjust than base motorcycle prices when costs decrease.
Dealers said the fee is $850 to $1,500 a bike. Harley this week told analysts that the surcharges helped boost revenue during the fourth quarter last year.
Harley-Davidson added a fee to its motorcycles to cover rising material costs; a dealership in Louisville, Ky., this week.
Photo:
Luke Sharrett/Bloomberg News
Some restaurants are adding new fees in response to escalating costs for food and packaging, and for wage increases executives say are needed to keep cooks and servers.
Brinker International Inc.’s
Maggiano’s Little Italy in October 2020 started charging $5 for a second, to-go pasta dish offered as part of a two-entree deal. For about a decade before the pandemic, the chain had offered a second classic pasta dish free.
“We’ve had no push back,” Maggiano’s president Steve Provost told investors last October. A Brinker spokeswoman said the price change allowed the company to invest more in the value of its carry-out offerings.
When Michael Pfeifer, a marketing professional, picked up the check for his meal at
RPM
Seafood in Chicago this week, he was surprised to find a 3% Covid surcharge added to the bill. “What’s next?” he said. “A dishware rental fee?”
The fee, added in the spring of 2020, offsets the cost of pandemic-related government regulations and mandates, said RJ Melman, president of Lettuce Entertain You, which owns RPM. “These fees can be removed and refunded for any guest that requests,” he said, “no questions asked.”
Peloton, according to its website, is adding the new $250 fees on bikes and a $350 delivery-and-setup fee for some of its treadmills. It cut the price of its original stationary bike in August to $1,495 from $1,895. With the added fees, the total price is now back up to about $1,745, as the company dealt with slowing demand and its own rising costs.
Peloton declined to comment on the fees. In an earnings call on Tuesday, Peloton CFO
Jill Woodworth
said that the fees could cut into consumer demand but that they were part of a “critical learning” process as the company restructures and cuts costs for the post-pandemic era.
Walt Disney Co.
’s Disney World in Orlando stopped offering free airport shuttles—known as the Magical Express—this year, leaving Disney guests to pay for their own transportation. The parks added several fees last year while keeping the base ticket price at $109. A fast-pass system that let park guests make reservations for rides, which used to be free, was discontinued and replaced by a new system that costs $15. And some popular rides, like Star Wars: Rise of the Resistance and Space Mountain, now cost between $7 and $15, on top of the park admission ticket.
Disney offers “a wide range of options to match different budgets and interests,” said Disney spokesman Avery Maehrer.
At its theme-park restaurants, Disney is trying to avoid across-the-board price increases, Disney CFO
Christine McCarthy
told analysts in November. “We can substitute products. We can cut portion size, which is probably good for some people’s waistlines,” she said. “But we aren’t going to go just straight across and increase prices.”
Consumer backlash
Consumer pressure has led some companies to back off added fees, including
Frontier Group Holdings Inc.
The airline, which uses a la carte pricing that lets frugal travelers choose to forgo amenities, in May 2021 added a $1.59-per-flight-segment Covid-related fee. After consumer backlash, Frontier in June stopped breaking it out as a component of its base fare but it didn’t stop charging it. Frontier didn’t respond to requests for comment.
In a press release it said: “The charge, which was included in the airline’s total promoted fare versus an add-on fee, was meant to provide transparency and delineate what portion of the fare was going toward COVID-related business recovery.”
Some of
Marriott International Inc.’s
Autograph Collection hotels had been charging a “sustainability fee” of about $5 a night. The company that manages the properties, Innkeeper Hospitality Services LLC, says it covered things like more-efficient HVAC systems.
They stopped charging the fee several weeks ago, “because we understand that while we believe in environmentally responsible stewardship, not everyone cares about our planet’s health,” IHS CEO Amrit Gill said. He said Marriott had asked the company to stop charging the fee. Marriott declined to comment.
The Biden administration has begun to look into some forms of hidden fees, which it calls “junk fees.” The administration says the amount being charged is not always tied to the costs faced by the company providing the goods or services. The Consumer Financial Protection Bureau is seeking public input on financial services, such as bank overdraft fees, while the Transportation Department is planning actions on airline baggage fees.
John Fiorello, a father of four in Torrington, Conn., was dismayed to see prices rising in his local grocery-store aisles but was initially pleased to see that the blocks of cheese he usually buys hadn’t gone up much in price—perhaps 10 cents, he said. Then he noticed that the package had shrunk, to 12 ounces from 16.
“I picked up the block and said, ‘this is definitely smaller,’ ” Mr. Fiorello said. “It just adds an extra layer of stress.”
Shrinkflation, as economists call it, tends to be easier for companies to pass on to consumers. Despite labels that show price by weight, research shows that most customers look at only the overall price.
The food industry has long shrunk package contents instead of raising prices during economic-distress periods; a Salt Lake City grocery store in October.
Photo:
George Frey/Bloomberg News
“There are sizes that people remember, like a half gallon of ice cream,” said John Gourville, a Harvard Business School professor. “Once you break from iconic sizes, it’s pretty easy to move from 13 ounces to 12 ounces.”
Over the years, tuna cans have come to contain less tuna and toilet-paper rolls less tissue, said
Burt Flickinger III,
managing director of Strategic Resource Group, a consulting firm that works with consumer-product companies. “Historically,” he said, “it’s called a ‘cheater pack.’ ”
Companies have become more sophisticated and use multiple tactics to protect their profitability, he said. They can pull back on discounts, stop making low-selling products and create new varieties that sell for higher prices
Downsized Oreos
Oreo-maker Mondelez International Inc. raised prices by an average of 6% to 7% in the U.S. last month, but it wasn’t enough to make up for its higher costs, the company said. So Mondelez has been introducing new sizes and flavors it says are more profitable.
Oreo’s new 110th Birthday chocolate confetti-cake cookies cost about 10 cents more than regular Double Stuf Oreos at several grocery stores, even though the new flavor comes in a slightly smaller package. At a
Target Corp.
store in Chicago, the limited-edition birthday Oreos, which came out January, cost $3.79 for a 24-cookie package and the Double Stuf ones cost $3.69 for a 30-cookie package.
Retailers set the final prices. Mondelez said it charges the same for the two products, and its limited edition flavors are typically different-sized packages than regular ones. A Target spokesperson said: “We’re priced competitively throughout the markets we do business.”
Economists and analysts at the Labor Department’s Bureau of Labor Statistics monitor prices of thousands of goods and services. They can account for shrinkflation, because they track the cost of certain products by weight and quantity—so a cereal box that costs the same amount but now has 30% less volume would be registered as a price increase.
They said their efforts can’t identify every fee or dropped amenity, such as a hotel room rate that remains the same but that no longer includes fresh towels or a hot breakfast. “We do not capture the decrease in service quality associated with cleaning a room every two days rather than one,” said Jonathan Church, a BLS economist.
Disney World in Florida added several fees last year while keeping the base ticket price at $109; the Magic Kingdom last summer.
Photo:
Joe Burbank/Orlando Sentinel/Associated Press
Jeremiah Mayfield and Carlos Larrea stayed at Alohilani Resort in Honolulu in December and opted for a $75 a-night upgrade to “club level” for free food and drinks. But they said they could rarely use it because the resort didn’t have enough staff to replenish the club-level amenities. After complaining, they were offered free dinner.
Alohilani General Manager Matthew Grauso said that quality and efficient guest service are top priorities and that he tries to remedy any shortfalls immediately, adding, “The pandemic has presented a unique set of challenges within the hospitality industry.”
“We gave them hell for it,” Mr. Mayfield said. “We paid $800 a night. We never expected it would be so scarce in terms of service and amenities.”
Many hotel chains are replacing complimentary hot breakfast buffets with a snack bag. Some fitness centers and pools remain closed, and housekeeping doesn’t refresh rooms daily. Some guests feel like they are getting less for their money.
InterContinental Hotels Group
PLC, which owns Holiday Inn, said it has been working with hotels to return amenities and make it right if guests aren’t satisfied. “Hotel teams have been overcoming many challenges including supply chain and labor shortages, changing health guidance and regulatory requirements,” an IHG spokesperson said.
On a recent trip to St. Louis, Meg Hinkley booked a Holiday Inn because it said online that it offered room service. When she arrived, the restaurant was closed, so there was no room service. She said she would have stayed at a lower-priced hotel if she had known. “I was paying for that convenience.”
—Heather Haddon and Bob Tita contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com
Over his first term in office, Jerome Powell became arguably the most dovish chairman in the Federal Reserve’s modern history, giving priority to full employment in an era in which inflation seemed extinct. In his second term, he may have to execute the reverse: giving priority to inflation at the risk of sacrificing jobs.
The pivot could be painful for both Mr. Powell and President Biden. On Monday, Mr. Biden praised Mr. Powell for his commitment to “maximum employment” so that “American workers get steady wage increases after decades of stagnation, and…the benefits of economic growth are broadly shared.” Yet economic conditions have been substantially reordered in just the past year. Inflation, at 6.2%, is its highest in 31 years. While employment remains 4.2 million below its pre-pandemic peak, labor shortages are widespread, and wage growth is accelerating. All that threatens the Fed’s 2% inflation target.
The numbers: The cost of living rose in August at the slowest pace in seven months and signaled a big surge in inflation this year may have peaked, but Americans probably aren’t going to get much relief from higher prices anytime soon.
The consumer price index climbed 0.3% last month, the government said Tuesday. Economists polled by The Wall Street Journal had estimated a 0.4% increase.
The rate of inflation over the past year, meanwhile, slipped to 5.3% in August from 5.4%. It’s the first decline since last October.
Aside from a brief oil-driven spike in 2008, consumer prices have risen this year at the fastest pace in three decades. Consumers are paying more for food, gas, new and used cars and other goods and services.
Another closely watched measure of inflation that omits volatile food and energy rose an even smaller 0.1% in August. That’s the smallest increase since February.
This so-called core rate is closely followed by economists as a more accurate measure of underlying inflation.
The 12-month increase in the core rate fell for the second month in a row to 4% after hitting a 30-year high in June.
Big picture: The big wave in inflation this year is all but certain to crest soon, and perhaps it’s already started. The big debate on Wall Street and in Washington is how much price pressures recede and how long it takes.
The Federal Reserve is sticking to its prediction that the rate of inflation will fall toward its 2% target some time in the next year. Fed officials believe labor and material shortages spawned by the pandemic will fade and ease the upward pressure on prices.
Fed critics contend some inflation is getting ingrained in the economy. They worry inflation will remain well above 2% through next year and potentially pose a threat to the U.S. recovery.
For now Wall Street isn’t worrying all that much, but inflation could become a major issue in the 2022 U.S. elections if it doesn’t begin to subside a lot more. Republicans have used high inflation to attack the economic policies of President Joe Biden.
Americans themselves are pessimistic about inflation. A new survey by the New York Federal Reserve shows consumers expect inflation to average 5.2% in the next 12 months. These surveys haven’t always proven to be a good predictor of future inflation, however.
Key details: The cost of food — at groceries and restaurants — rose sharply again in August.
Prices also increased for gasoline, new autos, home furnishings and rent.
Prices fell for airfare, hotels, car insurance and used vehicles.
Fewer people bought airline tickets, perhaps because of kids returning to school and the spread of delta. The cost of flying sank 9.1% and was largely responsible for inflation in August coming in below Wall Street expectations.
The decline in used-car prices was the first in six months. Priced are still up 32% over the past year, but that’s down from a recent peak of 45%.
Both new and used cars are in short supply because of lingering disruptions from the pandemic.
What they are saying? “The hot inflation streak cooled considerably in August, especially with used car prices taking a big drop after inflating CPI for months,” said corporate economist Robert Frick of Navy Federal Credit Union.
“Monthly price increases may be cooling, but the annual rate of inflation remains red hot for now,” said economist Andrew Grantham of CIBC Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
+0.76%
and S&P 500
SPX,
+0.23%
were set to open higher in Tuesday trades. The smaller-than-expected increase in inflation gave a boost to stocks. They had been trading lower in premarket action.
The yield on the 10-year U.S. Treasury note
TMUBMUSD10Y,
1.319%
rose slightly.
WASHINGTON—The White House more than doubled its forecast for annual inflation in new projections released Friday, as supply chain disruptions stemming from the Covid-19 pandemic continue to put upward pressure on prices.
The Office of Management and Budget said it expects consumer prices will rise 4.8% in the fourth quarter from a year earlier, up sharply from the 2% rise that the Biden administration forecast in May. Officials see those price pressures quickly abating next year, with the consumer-price index rising 2.5% in the fourth quarter of 2022, more than the 2.1% they expected in May, and reaching 2.3% in 2023.
Those updated projections are consistent with other independent forecasts, including from the Federal Reserve, and reflect the administration’s view that price pressures, while higher than expected earlier this year, are likely to fade over time, administration officials said Friday.
“We think this trajectory is very much consistent with the inflation outlook we’ve been discussing pretty much since we got here,” one official said on a call with reporters.
Recent data suggest inflation pressures may have started easing but remain elevated. Consumer prices rose 0.4% last month, lower than the prior month’s 0.5% gain, according to the Federal Reserve’s preferred inflation gauge. Compared with a year ago, overall prices rose 4.2%.
