Is inflation cured? Half of California doesn’t think so
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| Cost of Living Concerns from US Census Bureau HPS |
The Perceived State of Inflation in California:
1. Persistent concerns: Despite the Federal Reserve's efforts to combat inflation, about half of Californians still experience significant stress related to price increases. 51% of Californians surveyed found recent price increases "very stressful" or "somewhat stressful."
2. Overall price increase: Since 2020, prices in California have grown about 20% overall, according to an analysis by the California Legislative Analyst's Office.
3. Disparate impact: The effects of inflation are not uniform across demographics:
a. Lower-income households are more affected: 72% of Californians in households making $50,000 or less annually report significant inflation stress.
b. Age differences: 57% of 18-39 year-olds report inflation concerns, compared to 42% of those 65 and older.
c. Education gap: 56% of Californians with a high school degree or less report high cost-of-living stress, versus 47% of those with some college education or more.
4. Specific price increases:
a. Food costs remain high, with food banks reporting continued high prices for some items like eggs.
b. Auto insurance premiums rose 17.7% from 2023 to 2024.
c. Utility costs have increased, with regulators approving rate hikes for major utilities.
5. Housing costs: While rent increases have slowed or even decreased in some areas, California's median rent of $2,755 is still 38% higher than the national median.
6. Wage growth lag: Wage growth has not kept pace with inflation. While wages have grown about 15% since before the pandemic, this represents a real pay cut of about $1.25 per hour when adjusted for inflation.
7. Ongoing challenges: Despite some moderation in inflation rates, prices for many goods and services remain significantly higher than pre-pandemic levels, continuing to strain many Californians' budgets.
8. Regional comparison: California's inflation concerns (51% of residents) rank 33rd highest among states, with some states like Louisiana (59%) and Indiana (58%) reporting higher levels of inflation anxiety.
In summary, while inflation rates have moderated from their peak, the cumulative effect of price increases continues to impact many Californians, particularly those in lower-income brackets and younger age groups. The disconnect between wage growth and price increases remains a significant challenge for many households in the state.
Is inflation cured? Half of California doesn’t think so – San Diego Union-Tribune
We are just weeks away from the Federal Reserve announcing the war on inflation has been won.
Yet half of California might disagree, according to a regular Census Bureau survey that looks into the intersection of social and economic issues – including how prices affect consumer psyche.
In the past two-plus years, the nation’s central bank has used high interest rates to temper an overheated cost of living. The tactics seem to have worked as the official inflation rate has fallen from highs not seen in four decades in 2022 to essentially average levels this summer. So at the Fed’s September meeting, central bankers will likely begin lowering interest rates they control.
However, my trusty spreadsheet looked at the California slice of the survey and found 51% of those polled said increases in prices in the previous two months were “very stressful” or “somewhat stressful.” Additionally, 32% of Californians found it “somewhat difficult” or “very difficult” to pay for “usual household expenses in the last seven days.”
Now, this divide between Fed economists and a typical Californian’s wallet may be a matter of focus.
Yes, just about everyone agrees that the annual rate of growth in consumer prices is now muted. But nothing the central bank does can erase the roughly 20% jump in the cost of living in four years.
Those price hikes continue to be a major wallop to a typical California household budget – adding worry and stress to life in the already expensive Golden State.
This economic disconnect helps explain why California consumer confidence, at least as it is measured by the Conference Board, fell to a four-year low in September.
By the slice
What the census survey reveals is that one’s inflation viewpoint is likely tied to their financial strength. This is basically a have-vs.-have-not debate.
If the paycheck is plump, you have a shot at zigzagging around inflation. If it’s skimpy, well, good luck!
Ponder that 72% of Californians in households making $50,000 a year or less have significant inflation stress. And 54% of this low-paid slice of the Golden State say they had recent challenges paying the bills.
Conversely, consider California households earning $150,000 or more. Only 38% worry about inflation, with a mere 13% expressign bill-pay troubles.
That’s a stunning monetary spread, and it’s a theme running throughout the survey’s demographic slices.
Gender: Men typically earn more than women for a host of reasons. And 46% of California men have noteworthy inflation angst, with 29% in trouble with bills. But 55% of women polled in California have big inflation stresses, with 35% juggling payment challenges.
Age: The older you are, there’s typically greater financial security.
So, only 42% of 65-and-older Californians have inflation worries and 24% face bill-pay trouble. Compare that with the 49% of age 40-64 Californians with cost-of-living anxieties and 32% in bill-pay trouble.
And then there are the kids, the 18- to 39-year-old flock: inflation scares 57% of them, with 37% suffering payment headaches.
Education: Schooling is often tied to wealth generation. And this survey also has a degree gap.
The survey found 56% of lesser-educated Californians – folks with no more than a high school degree – have high cost-of-living stress and 39% are in trouble with bills. But only 47% of more-educated Californians – people who have some college experience, or more – are very troubled by inflation, with just 28% facing payment challenges.
It’s a family affair
Family status also conveys to financial stability. Contemplate what the survey tells us.
Marital status: 47% of married Californians have serious inflation fears, with 26% in bill-pay trouble. Those challenges jump to 56% of the not married group – divorced, widowed or single – with inflation worries and 39% having payment headaches.
Household size: Cost-of-living anxieties are lower when two Californians share a place. Only 43% of people in this living arrangement have cost-of-living worries, with 25% in bill-pay trouble. Let’s guess that most of these situations come with two incomes.
Inflation stresses jump to 51% in one-person households, with 30% in bill-pay trouble. And where three or more Californians are under one roof, 53% have inflation angst, with 35% having payment headaches.
Children: It’s a good guess that California’s larger families have kids – and added cost-of-living distress.
The survey found 54% of Californians living with children had high inflation apprehensions, with 38% in bill-pay trouble.
Yet, those with no kids? Just 48% had inflation angst, with 28% facing payment headaches.
Bottom line
The Fed is tasked with thankless chores that often require unpopular moves.
Think of all the folks angered by sharp hikes in interest rates, notably the real estate community. So the reversal of that policy without trimming previous price hikes will upset others, decidedly those still suffering inflation pains.
And cost-of-living consternation is not simply some quirky Golden State anguish. California’s 51% inflation worries ranked only 33rd highest among the states.
Louisiana had the highest anxieties at 59% of its population, then Indiana at 58% and Utah at 57%. California’s big economic rivals had lofty inflation fears, too: Texas was No. 13 at 55.3% and Florida was next at 55.1%. Smallest worry was in Minnesota at 39%, then Wisconsin at 48%, and Vermont at 45%.
As for bill-pay stress, California ranked No. 27 at 32% of its residents.
Tops was Mississippi at 42%, then Alabama at 39%, and Indiana and West Virginia at 38%. Texas was No. 11 at 34% and Florida was No. 7 at 36%. Lowest? Minnesota and Vermont at 24% and Massachusetts at 26%.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
We are just weeks away from the Federal Reserve announcing the war on inflation has been won.
Yet half of California might disagree, according to a regular Census Bureau survey that looks into the intersection of social and economic issues – including how prices affect consumer psyche.
In the past two-plus years, the nation’s central bank has used high interest rates to temper an overheated cost of living. The tactics seem to have worked as the official inflation rate has fallen from highs not seen in four decades in 2022 to essentially average levels this summer. So at the Fed’s September meeting, central bankers will likely begin lowering interest rates they control.
However, my trusty spreadsheet looked at the California slice of the survey and found 51% of those polled said increases in prices in the previous two months were “very stressful” or “somewhat stressful.” Additionally, 32% of Californians found it “somewhat difficult” or “very difficult” to pay for “usual household expenses in the last seven days.”
Now, this divide between Fed economists and a typical Californian’s wallet may be a matter of focus.
Yes, just about everyone agrees that the annual rate of growth in consumer prices is now muted. But nothing the central bank does can erase the roughly 20% jump in the cost of living in four years.
Those price hikes continue to be a major wallop to a typical California household budget – adding worry and stress to life in the already expensive Golden State.
This economic disconnect helps explain why California consumer confidence, at least as it is measured by the Conference Board, fell to a four-year low in September.
By the slice
What the census survey reveals is that one’s inflation viewpoint is likely tied to their financial strength. This is basically a have-vs.-have-not debate.
If the paycheck is plump, you have a shot at zigzagging around inflation. If it’s skimpy, well, good luck!
Ponder that 72% of Californians in households making $50,000 a year or less have significant inflation stress. And 54% of this low-paid slice of the Golden State say they had recent challenges paying the bills.
Conversely, consider California households earning $150,000 or more. Only 38% worry about inflation, with a mere 13% expressign bill-pay troubles.
That’s a stunning monetary spread, and it’s a theme running throughout the survey’s demographic slices.
Gender: Men typically earn more than women for a host of reasons. And 46% of California men have noteworthy inflation angst, with 29% in trouble with bills. But 55% of women polled in California have big inflation stresses, with 35% juggling payment challenges.
Age: The older you are, there’s typically greater financial security.
So, only 42% of 65-and-older Californians have inflation worries and 24% face bill-pay trouble. Compare that with the 49% of age 40-64 Californians with cost-of-living anxieties and 32% in bill-pay trouble.
And then there are the kids, the 18- to 39-year-old flock: inflation scares 57% of them, with 37% suffering payment headaches.
Education: Schooling is often tied to wealth generation. And this survey also has a degree gap.
The survey found 56% of lesser-educated Californians – folks with no more than a high school degree – have high cost-of-living stress and 39% are in trouble with bills. But only 47% of more-educated Californians – people who have some college experience, or more – are very troubled by inflation, with just 28% facing payment challenges.
It’s a family affair
Family status also conveys to financial stability. Contemplate what the survey tells us.
Marital status: 47% of married Californians have serious inflation fears, with 26% in bill-pay trouble. Those challenges jump to 56% of the not married group – divorced, widowed or single – with inflation worries and 39% having payment headaches.
Household size: Cost-of-living anxieties are lower when two Californians share a place. Only 43% of people in this living arrangement have cost-of-living worries, with 25% in bill-pay trouble. Let’s guess that most of these situations come with two incomes.
Inflation stresses jump to 51% in one-person households, with 30% in bill-pay trouble. And where three or more Californians are under one roof, 53% have inflation angst, with 35% having payment headaches.
Children: It’s a good guess that California’s larger families have kids – and added cost-of-living distress.
The survey found 54% of Californians living with children had high inflation apprehensions, with 38% in bill-pay trouble.
Yet, those with no kids? Just 48% had inflation angst, with 28% facing payment headaches.
Bottom line
The Fed is tasked with thankless chores that often require unpopular moves.
Think of all the folks angered by sharp hikes in interest rates, notably the real estate community. So the reversal of that policy without trimming previous price hikes will upset others, decidedly those still suffering inflation pains.
And cost-of-living consternation is not simply some quirky Golden State anguish. California’s 51% inflation worries ranked only 33rd highest among the states.
Louisiana had the highest anxieties at 59% of its population, then Indiana at 58% and Utah at 57%. California’s big economic rivals had lofty inflation fears, too: Texas was No. 13 at 55.3% and Florida was next at 55.1%. Smallest worry was in Minnesota at 39%, then Wisconsin at 48%, and Vermont at 45%.
As for bill-pay stress, California ranked No. 27 at 32% of its residents.
Tops was Mississippi at 42%, then Alabama at 39%, and Indiana and West Virginia at 38%. Texas was No. 11 at 34% and Florida was No. 7 at 36%. Lowest? Minnesota and Vermont at 24% and Massachusetts at 26%.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
Originally Published:
Californians face higher costs for goods and services than before the pandemic despite inflation slowing
In summary
The consumer price index shows services are mostly responsible for persistent inflation, but prices for food and other goods in California remain high.
Pandemic-era inflation has fallen from its peak two years ago, but the costs of many goods and services continue to rise and are still higher than before the onset of COVID-19, a couple of closely watched economic indicators show.
Prices have grown about 20% overall since 2020, according to an analysis by the California Legislative Analyst’s Office based on the most recent consumer price index data. Over the past couple of months, prices in California appear to have risen slightly more than the country as a whole, according to data from the Bureau of Labor Statistics.
Continued rising prices are why many Californians are struggling in an economy that’s widely considered to be doing OK because the nation has avoided a recession, experts say.
While a slowdown in inflation, or price growth, is “great news, it’s not like those prices are declining,” said Sarah Bohn, economist and director of the Public Policy Institute of California Economic Policy Center. “When you go to the grocery store, your total bill is still much higher overall than a few years ago,” she said.
What’s more, Bohn said Californians’ wages have not kept up with inflation: “Wages only grew 15% than before the pandemic. On paper, that looks amazing, like a $5-an-hour increase. But after inflation, it feels like a pay cut — I calculated that it’s like a $1.25-an-hour cut.”
That’s a big concern, especially for low- and middle-income families who “have a lot less flexibility in terms of what they’re spending their resources on,” Bohn said.
Nationwide, services are mostly responsible for continued inflation, Bureau of Labor Statistics data shows. The prices of goods such as new vehicles, and meat, poultry, eggs and fish were unchanged from December to January, while overall food prices were up almost 0.4%, slightly lower than the previous two months. Consumer costs for services such as electricity, rent, medical care, airfares and health and auto insurance all rose.
But in California, high prices for both goods and services persist.
Food banks say the cost of buying food hasn’t gone down — and the demand for their services remains high as pandemic aid has expired and inflation remains.
While the San Francisco-Marin Food Bank hasn’t seen “major” price increases for meat, and produce prices have stabilized, it continues to see high prices for some food, said spokesperson Keely Hopkins. The average price the food bank has paid for eggs has risen by $2.27 a dozen over the past eight months, Hopkins said.
High food prices have also been a problem for the Los Angeles Regional Food Bank, which buys 10% of its inventory to supplement donated food: The food bank now serves an average of 900,000 people per month, two and a half times the monthly average pre-pandemic.
“(That’s) the impact of the end of COVID-era programs such as the SNAP/CalFresh benefit boost and the continued impact of inflation,” said David May, a spokesperson for the food bank.
On the services side, some California residents are struggling to get affordable auto insurance, with premiums rising 17.7% from 2023 to 2024, according to Bankrate.com. Prices for electricity have also increased, as regulators approve rate hikes by major utilities such as PG&E.
As for rent, “shelter is the major driver of services inflation in the inflation numbers,” said Jerry Nickelsburg, senior economist for the UCLA Anderson Forecast. He added that “we are seeing a slowing in rental rates (negative in some parts of the state), but as leases come due and rent-stabilized units are vacated, average rents increase to today’s market rents.”
Rent in California is 38% higher than the national median, according to real-estate listings company Zillow. This month, the median rent of $2,755 in the state rose $5 from the month before but is $195 less than it was in March 2023, Zillow data shows.
Meanwhile, the personal consumption expenditures price index, which excludes food and energy costs, rose 0.4% in January from the previous month, and 2.8% from the previous year, according to data released by the Commerce Department’s Bureau of Economic Analysis last week. The Federal Reserve is said to focus more on this index instead of the consumer price index because it more accurately reflects actual consumer spending. Either way, since the Fed’s target inflation rate is 2%, continued inflation means that it is not likely to slash interest rates anytime soon — meaning possible continued slowness in home buying and in getting loans to buy big-ticket items such as cars, and in borrowing by businesses.
Nickelsburg said he does not expect the Fed to reduce interest rates in the first half of the year. That’s in line with the expectations of other economists, such as those from Wells Fargo, who said in a report last month that continued inflation means the “road back to 2% inflation likely will have some potholes.”
The ‘Grumpy Economist’ on inflation’s causes and cures
As Americans know all too well, inflation surged dramatically in 2022 and 2023 following the worst of the COVID pandemic. The Federal Reserve responded with a rapid series of rate hikes that drove up the cost of mortgages and other loans to levels not seen since the 1990s. The growth in prices has moderated substantially since then and Fed Chair Jerome Powell recently announced that the Fed could begin to lower interest rates as soon as September if inflation is moving “sustainably” toward its 2% target.
In this Q&A, John Cochrane dives deep into our unusual inflationary times. Cochrane is an economist at Stanford’s Hoover Institution and a professor of finance and economics (by courtesy) at Stanford Graduate School of Business. He is the author of The Fiscal Theory of the Price Level and writes a newsletter titled The Grumpy Economist.
In a recent paper in the Review of Economic Dynamics, Cochrane argues that higher inflation resulted from the federal government pouring trillions of dollars in stimulus spending into the economy during the pandemic. To prevent future inflation shocks, he says U.S. policymakers must target taxes, spending, and growth and stop relying on rate-setting alone to keep the economy in check. “The Fed is a lot less powerful than people think,” he says.
What do you think is behind the pandemic-era burst in inflation and its recent moderation?
John Cochrane: In my analysis, inflation mostly came from the government’s $5 trillion in COVID and post-COVID deficits. The government essentially sent people $5 trillion with no plans to pay the money back. People tried to spend it, driving up prices. The Fed eventually raising interest rates made inflation come down a bit faster than it would have otherwise, but it was going to go away on its own anyway. There is no magic momentum to inflation. Stop pushing, and it stops.
You argue that higher inflation did not result from the Fed’s efforts to buy up $4 trillion in government debt from banks during the 2010s, known as quantitative easing (QE). Doesn’t this run counter to conventional economic theories?
From 2010 to 2019, the government bought $4 trillion of bonds and issued $4 trillion of new money in return. Those transactions had zero effect on inflation, which just trundled along a bit below 2%. Then from 2021 to 2023, the government borrowed $5 trillion, and sent people checks. This time, the Fed bought about $3 trillion of the new debt and issued new cash to banks. In this second scenario, we got huge inflation. I think the lesson is pretty clear — it’s the big deficit that caused the inflation, not primarily whether the Fed buys Treasury debt and gives bank reserves in return.
Money is just another kind of government debt, after all. QE is taking a $20 bill and giving back two fives and a ten. Getting change for the $20 is not going to make people spend a whole lot more. Deficit finance is just giving people $20. Whether they get the $20, or two fives and a ten, doesn’t really matter. They spend it.
I should clarify in all this: debt and deficits alone do not cause inflation. Governments often borrow, spend, and don’t produce inflation because they have credible plans to pay back the debt. Government borrowing in crises can be a great and good thing. If you get a $20 bill as well as news that taxes go up $20 tomorrow, you save the $20 and there is no inflation. It’s pretty central that there really was little talk about how the big deficits of 2020–2022 would be paid back.
Was the Fed too slow in responding to rising inflation in 2021?
Yes. Not even in the 1970s did the Fed wait an entire year to move interest rates after inflation surged.
The temptation has been to set interest rates using a simple, preannounced mathematical formula, such as the Taylor Rule, which says that central banks should raise interest rates when inflation increases and lower rates when GDP declines. Does the U.S. need to rely more or less on predictable rules in the future?
Rules have always been attractive and always contentious. The Fed feels that by looking at everything, it can surely do better than following a rule. Critics say that looking at everything has just distracted the Fed and led to many past mistakes. Rules are helpful to guide people’s expectations and let them plan better. A rule makes the Fed’s actions more predictable. And more boring. A Fed chair who just implements a rule can’t be the master of the universe.
I think the Fed should not mechanically follow a rule, but rather use rules as a benchmark. Then explain what’s special today that motivates deviating from the rule. Yes, look at inflation and employment, but don’t ignore a huge war, financial crisis, or cyberattack. This is John Taylor’s interpretation of the rule, and I largely agree.
The liberal economist Paul Krugman agrees with you that runaway inflation didn’t follow from setting interest rates at zero for decades and that the Fed probably engineered a “soft landing,” which you predicted in 2022 as well. Do you two agree often?
If we come to the same answer, it is from a totally different background. We fundamentally disagree on the cause of inflation. He backed the “supply shock” excuse and predicted it would be “transitory.” Supply shocks are relative price movements, not inflation. He’s been all for fiscal stimulus. I think the fiscal stimulus caused the inflation. So there is still plenty to disagree on.
The current speculation is that Fed Chair Powell could start to lower interest rates to stimulate the economy right before the election. As monetarists like Milton Friedman have asked, can the Fed be trusted to set interest rates in a nonpolitical way to fight inflation?
I don’t think the current Fed does any tinkering of interest rates to affect elections. The Fed is a political body, however. The Fed was set up by Congress, which wanted it a little bit independent and a little bit responsive to political needs. Remember, we live in a democracy, not rule by unaccountable unelected technocrats. A bit of responsiveness to the people’s elected representatives is not a terrible thing. The Fed’s nods to climate, its move to worry about inequality, and its constant protection of the banking industry do represent a bowing to politics. If Congress wishes to have a more independent central bank, it can set up the bank with more independence.
You argue that monetary policy may be “just a carrot in front of the fiscal horse that pulls the inflation cart,” with fiscal policy mainly responsible for the recent bout of rapid inflation. Why do you say that coordinated action is necessary on both the fiscal and monetary fronts?
The Fed alone cannot stop all inflation. The Fed is a lot less powerful than people think. Our fiscal situation is in really bad shape. Markets expect Congress to fix it after they’ve tried everything else, but eventually people will lose faith. I also fear that the next crisis will be like the last one, but bigger. In the next crisis, the government will want to borrow and print maybe $10 trillion to bail out the financial system again, keep businesses and people afloat, and maybe finance a war. But since everyone saw how things turned out last time, we’ll get a big inflation fast. Or a debt crisis, or a default. It can happen, even in the U.S. Then the U.S. can’t borrow enough to meet the needs of the crisis, a genuine catastrophe.
With payments on the U.S. federal debt already at historic levels, most economists surveyed by the Wall Street Journal in July predicted that inflation, budget deficits, and interest rates would be higher under a second Trump administration. What’s your view of the future of inflation if Trump or Harris were to win the election?
I don’t see a big difference between the parties in terms of inflation. Democrats will tax more, spend more, and rack up huge deficits. They’ll hobble traditional energy businesses, throw money down supposedly green protectionist ratholes, and encourage immigration. Republicans will tax a little bit less, spend a little bit less, deregulate a bit, impose tariffs, throw money down other protectionist ratholes, and rack up huge deficits.
The important part of all these policies is how much they raise or lower overall economic growth. They really are not about inflation.
This interview has been edited for length and clarity.
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