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The things that we are still spending money on — food, rent, booze and video streaming — are going up in price as the coronavirus pandemic wears on. The things that we aren’t buying as much of — gasoline, clothing, transportation and hotel rooms — are going down in price.
And the government says there’s no inflation.
The Bureau of Labor Statistics reported Wednesday that the consumer price index fell 0.1% in May, driven by deep discounting on energy, car insurance, clothing and public transportation prices. The so-called core rate of inflation, which strips out volatile food and energy prices, also fell 0.1%, the first time the core rate has fallen three months in a row.
But there are serious questions about whether the CPI over the past few months accurately reflects the experience of many households. After all, do you care if gasoline prices fell 3.5% in May if you didn’t buy any?
Most households spend most of their income on necessities, such as food, shelter, transportation, health care and clothing. Low-income households typically spend 82% of their income on those five categories, while middle-class families spend 78% of theirs, according to researchers at the Brookings Institution. Even high-income families spend about 2/3 of their income on necessities.
But there are necessities and then there are the absolute necessities.
Most of us can put off buying clothes for a few months. Most of us have drastically cut back on our transportation spending since the coronavirus hit —there’s no place we want to go. And many people are spending less on health care because, frankly, they are afraid to go to the clinic while this nasty virus is still spreading.
But all us have to eat every day or so. And we have to pay the rent and other bills.
The absolute necessities are getting more expensive, while the things we can forgo are cheaper.
In May, grocery prices rose 1% compared to April. Over the past three months, they’ve risen 4.1% — that’s an annual rate of 17.5%. Beef prices are up 11% in just three months.
Shelter prices (including both rental and homeownership costs) are not rising as fast as they were at the beginning of the year, but they are still increasing, up 2.6% in the past year compared with a 0.9% drop in the prices of everything else.
And because shelter costs take up such a huge portion of household incomes, even a 0.2% monthly increase translates into a hefty hit to the budget, especially for low-income families that spend, on average, 41% of their income on housing.
Read:Fed projects no interest-rate hikes through 2022, sees inflation below 2%
If your family hasn’t lost any income during the pandemic, you’re probably saving a lot of money because you aren’t driving or going out much, even with higher grocery prices. Overall, savings soared to a record 33% of disposable incomes in April (we don’t have the May figures yet).
But if you’re among the 52% of households that lost more than 25% of their income, you might be feeling the pinch, especially if you are surviving on that one-time $1,200 check or on the soon-to-expire $600 unemployment bonus. Especially if grocery prices keep going up 1% every month.
The country as a whole may be living in a time of deflation, but not everybody is experiencing falling prices in the things they must buy to survive.
Now read this from May 2018, but still relevant:The only things going up in price are the bare necessities
