Food or gas: Which is more important this month?
An overview of inflation in the U.S
Shoppers in downtown Mount Pleasant are all too aware of high grocery bills. Those who watched the presidential and vice presidential debates are aware of other problems with cost, such as housing and energy.
Mount Pleasant shoppers have reasons to complain, but why did inflation spike, and how can this problem be solved?
Kimberly Becker, who was shopping downtown, said she came from Middleton to visit Sam’s Club.
“My grocery bill has more than doubled,” Becker said. “I used to get out $80 to $85 a week but now it’s $200 to $250.”
She said that is the cost of groceries for just her and her husband.
“Just looking at eggs, milk, the basics -- everything’s up at least a hundred,” she said.
“Expensive,” said Barbara Lockwood, a resident of Mount Pleasant. “Everything is expensive. Bread and milk used to be four for a dollar when I was young. Now people on fixed income have to prioritize everything: 'Which is more important to me this month?'
"I guess I’m glad I’m not young anymore," she said.
Carter Vespi was leaving the store with a small bag of groceries.
“I feel like prices have gone up a little bit since COVID-19 probably, in the past few years,” Vespi said. “And just from what other people have told me, too.”
Inflation
Inflation is a measurement of how well supply and demand are balanced. COVID-19 was a major factor in the 2022 inflation spike, for three major reasons.
During COVID-19, many businesses had to close, limiting the supply of goods and services. At the same time, the government was giving a series of financial stimulus to citizens, and the Federal Reserve was pumping out money as well.
The large demand and short supply from these three caused raises in inflation.
The inflation rate is the year-over-year percentage change in the consumer price index (CPI). The CPI measures the cost of a chosen representative basket of goods and services that the typical United States urban customer purchases each month. It is divided into categories like energy, housing, food and medical care with subcategories within those.
Because there is more variety to what some categories (baskets) include, each category has a different weight, and might drag the overall inflation percentage more in one direction, if it bears a larger weight.
Central Michigan University Economics Prof. Jason Taylor said a larger weight affects the measurement of inflation as a whole more than smaller weights. So the "basket" of shelter, with a weight of 45%, impacts the measurement of the overall year’s inflation more than the measurements of food, with a 15% weight, does.
Energy has a big weight and its price has fallen overall since 2022. A big weight tends to drag the overall inflation toward its percent. The chart from the US Bureau of Labor Statistics highlights this, as the category with the highest inflation is 'All items less food and energy' and the lowest inflation measurement is 'Energy' by itself.
Many other things are still very expensive, so 'All Items' and 'All Items less food and energy' appear to have higher inflation in this US Bureau of Labor Statistics graph.
Taylor said that inflation is affected by supply and demand. If many people want to buy something that’s in short supply, inflation for that thing will go up, which means that prices have gone up. Due to COVID-19, many people were unemployed for a while, so some items were in short supply, driving prices up.
Notably, having too much supply can also drive prices up, although that is not the current cause.
It is also important to note that lower inflation does not mean prices have gone down. It means that prices are not going up as quickly, Taylor said. America hasn’t experienced noticeable deflation since the Great Recession in 2007.
Pandemic-era inflation
The COVID-19 pandemic had a large effect on inflation. Taylor said that international trade was a big contributor towards it.
“During the pandemic, factories were shut down not just in the United States but in China and in other places,” Taylor said. “So that’s the supply chain issue we heard about.”
Taylor said most companies use inputs from overseas even if they build in America. He said that ports were backed up due to the lockdown, and disruptions in international trade also threaten American prices.
“Like an American car made by Ford,” he said. “Many parts of that car are made in Mexico or other places around the world and they are imported here and assembled, perhaps in an American factory. Don’t see this as a bad thing; Ford can charge a lower price for their car, which makes them more competitive in the global market.
“Most American companies have at least some parts of their supply chain in another country,” Taylor said.
He said that companies that would usually import a few parts from other countries like China or Mexico had to get them domestically or pay more due to the supply chain disruptions, which drove prices up.
Inflation in the election
As part of his plan for office, former President and current Republican candidate Donald Trump announced he would put high tariffs on imported goods, claiming that will protect American workers from their jobs being shipped overseas.
Taylor said the Trump tariff would actually increase inflation.
“It’s gonna cause goods to cost higher (prices)… because that's what tariffs are, prices on imported goods," he said. "By increasing the cost of imports which, many of the parts in the supply chain are imported, that’s gonna cause the cost of many items in the supply chain to go up.”
Housing is another concern for many Americans. Taylor said that supply of homes hasn't been keeping up with the growing population, which leads to a shortage of houses and also drives prices up.
Both presidential candidates Trump and Democrat Vice President Kamala Harris have acknowledged the housing concern.
“Harris’s $25,000 grant to first time home buyers will increase the demand for housing and raise housing prices (in general),” Taylor said. He said the plan would raise inflation.
But Harris has also said she would work to reform restrictive zoning laws and land development laws so that new houses can be built, which Taylor said would work.
Energy
Energy is another major factor in peoples’ financial stressors, according to a Gallup poll.
In the vice presidential debate, Republican JD Vance and Democrat Tim Walz were asked about energy prices.
Vance said that issues like housing all come back to energy production. He told a story about how if a car hauling logs to a construction site has to spend more on gas, then the logs and the new building will be more expensive.
Taylor said this is true, and energy production can affect the rest of the market.
“It’s a very good point that energy cost effects the cost of everything,” he said.
However, energy prices go wildly up and down because of world events. Gas prices peaked at just over $5 a gallon in June 2022, but overall energy inflation is down this year.
Gas prices are still high, but they appear to be getting lower since 2023. Gas is now averaging at $3.30 per gallon, according to the US Energy Information Administration.
The price of natural gas has been going down overall since 2008, with a spike around August 2022 at $9.51 per million Btu (MMBtu), according to the U.S. Bureau of Labor Statistics. The price of natural gas seems to be steadily declining since then, although it is at a higher point right now.
Taylor said that the increased use of technology, such as “fracking” has helped make energy production cheaper.
Mount Pleasant shopper Vespi made a guess of how information about energy prices got oversimplified during the presidential debate.
“Maybe it’s just what people see everyday,” Vespi said. “I feel like people are concerned everyday with (vehicle) gas prices … Most people don’t pay attention to prices of natural gas.”
American energy prices have outside factors, such as the Organization of the Petroleum Exporting Countreis (OPEC), a cartel that consists of Saudi Arabia and around 15 other countries. OPEC colludes to control the international price of oil and they have since 1960, Taylor said.
Taylor said that around 2008, America was completely self-dependent when it came to energy, and that the U.S. is still capable of producing almost all the energy that it needs without help. But he said that if demand is higher in another country, America can profit more off selling its energy to them. That is why American energy production isn’t isolated.
"While we may be energy independent or close to it, energy prices are driven by the global market," he said. "So, global events such as a war in the Middle East … these things can have an effect on the price of energy.”
Effect of financial stimulus checks during COVID-19
Together, the Trump and President Joe Biden administrations signed three bills that would give money to Americans who were out of work during COVID-19.
“Consider a family with two adults and two kids,” Taylor said. “They would have received $3,400 from the first stimulus in spring 2020, another $2,400 in December (both from the Trump Administration) and then $5,600 from the March 2021 Biden stimulus. Add that together and it is $11,400 per family of four. Multiply that by tens of millions of families and you’ve got trillions of dollars.”
But during the COVID-19 pandemic, many businesses temporarily shut down. There was no way to meet the demands of buyers, who now had extra money in their pockets, Tayler said.
The Federal Reserve tried to pump out more dollars to “prop up the economy,” Taylor said, but it had the opposite effect.
“You add these things together and it was trillions of dollars added to the size of the wheelbarrow, at the same time that people were unable to work and had to stay home,” he said. “No economist is surprised when you look back at what happened, that we had the highest inflation in 40 years. It’s no surprise.”
Solutions
America has mostly recovered from its inflation spike since 2022 according to the U.S Bureau of Labor Statistics, although people on the street will say that gas and grocery bills are still far too high. (After all, low inflation is not the reduction of prices.)
Taylor said there are various policies that could reduce inflation, such as providing incentives to entrepreneurs opening a new business.
“(We have to) find ways to incentivize our economy to produce more output ... to increase supply,” he said. “Incentives to open new businesses, lower taxes that allow an entrepreneur to keep more of what they may earn should they take the risk of opening or expanding a new business, are examples of policies that could reduce inflation.”
