Inflation keeps raging. Is there hope California price increases will ease anytime soon?
Inflation is not going to ease much anytime soon. Food prices will stay up, at least for now. So will rent and mortgages.
That’s the prediction from most economists Tuesday after the latest federal report on inflation found prices overall inching up slightly in August and increasing 8.3% over the year.
“Inflation is alive and well,” said Sung Won Sohn, president of SS Economics, a Los Angeles-based consulting firm.
And, he said, “No significant respite from inflation is in sight.”
Mark Schniepp, director of the California Economic Forecast, was more optimistic. He saw “minor progress to date on addressing the spike of inflation.”
He has predicted inflation would peak during the summer and then slow, and saw trends in energy and food prices that back up his view.
A big factor in slowing price increases involves higher interest rates. The chief government tool to fight inflation is raising interest rates, and the Federal Reserve is expected to do just that when it meets again next week.
Predictions are that it will raise its key rate as much as three-fourths of a percentage point. That in turn is supposed to help dampen demand, leading to price-slashing so that sellers can move goods and services.
“The nature of Fed action has been significant and the effects should become apparent as we progress through the end of 2022,” said Schniepp.
Inflation outlook
Energy
Gasoline prices nationally plunged 10.6% last month, but remained up 25.6% over the year. In California, the average price of a gallon of regular Tuesday was up again to $5.42. A week ago the average was $5.26 and a month ago, $5.37.
Oil prices drive a lot of inflation, since energy costs are often included in prices of a wide variety of goods and services.
“As long as the price of oil remains high, inflation is likely to remain high,” said Gokce Soydemir, Foster Farms endowed professor of business economics at California State University, Stanislaus.
He saw some lower prices, and therefore a smaller inflation number, next month.
Soydemir noted, though, that the Russia-Ukraine war “is mainly keeping oil prices along with fertilizer prices high at the moment which is adding to inflation from the supply side.”
Rising food costs
Food prices are up 11.4% over the past year, climbing 0.8% in August alone.
The U.S. Department of Agriculture saw prices this year going up 8.5% to 9.5%, though it did see price increases easing later this year and next year.
Food prices spiked in June at their fastest pace since 1979. Daniel Sumner, a professor with University of California, Davis Department of Agricultural and Resource Economics told The Bee in July that food is “going to cost more and more.“ And so far, he’s been right.
“Food price changes are part of the overall inflation in the economy,” he said.
Supply chain issues, as well as higher costs for energy, transportation and labor “have contributed to increases in prices across food categories,” the department said. It added, “recent declines in agricultural commodity and energy prices are expected to ease price increases across these categories through the remainder of 2022.”
Some products, though, are seeing unusually high price increases.
The department predicts egg prices will go up 24.5% to 25.5% this year, as an outbreak of avian flu has reduced the country’s egg-laying flock. Pork prices have gone up significantly, thanks to less supply and strong domestic and international demand.
In the western region of the U.S., including California, consumers are paying significantly more than before for their staple food items including dairy products, fruits and vegetables, meats and cereals.
The data used in the interactive line graph below, collected by the U.S Bureau of Labor Statistics, was last updated in September. According to the visualization, the values are not seasonally adjusted. Here is the percent change in the Consumer Price Index of food in the west region from September 2021 to September 2022.
Here are a couple of ways to think critically about what you fill your grocery cart with, said Sumner, who doubles as the director for the UC Davis Agricultural Issues Center:
Change the way you shop: Search for cheaper alternatives to food items. For example, maybe long-grain rice is less expensive than short-grain rice.
“Deal-breaker” items: Decide what your “deal-breaker” items or the products you don’t mind paying a little extra for are.
Buy in bulk: Depending on your space and the size of your household, buying food in bulk is “a great idea.”
Skip pre-made food: Buying the ingredients to make food from scratch is “almost always cheaper” than buying it already prepared.
Research your organic items: Before buying an organic product, research what it means for that item to be organic and decide what about the product being organic do you like.
“Normal people have to pay attention to their food costs,” Sumner said. “Depending on how much money you got, it could be a severe kind of a change.”
Housing
Mortgage rates Tuesday averaged 6.13% in California for a fixed, 30-year loan and 5.4% for a 15 year loan, according to Bankrate.com., which tracks rates.
Jordan Levine, California Realtors Association vice president and chief economist, expects the rate to reach the 6.2% to 6.5% range by the end of the year.
The impact, though, could be offset somewhat by stabilizing housing prices.
The California housing market experienced its 2022 “cool down” in June, according to previous Bee reporting. Then, many Sacramento home-buyers saw significant price drops in real estate for the first time in nearly two years.
The median home price in the state dropped 3.5% in July to $833,910, down from $863,790 in June, according to the state realtors’ association.
It said the moderation was mostly because of “a change in the mix of sales in July, as million-dollar home sales plummeted nearly 25% in June.”
The data used in this interactive map below, collected by Redfin, was updated in September. According to the visualization, data may not be available for all counties. Here is the median home sale price in California by county:
The Sacramento rental market seemed to cool a bit with “pandemic-fueled rent spikes” possibly coming to an end, The Bee previously reported. But recent data shows cities across California have sustained high prices over the last year.
The interactive map below, with data collected by RentHub, shows the average rent in cities across California.
This story was originally published September 14, 2022 at 5:00 AM with the headline "Inflation keeps raging. Is there hope California price increases will ease anytime soon?."
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