One of the methods that economists use to determine if the economy is entering a period of inflation or deflation is the consumer price index (CPI), put together by the Bureau of Labor Statistics. The CPI measures changes in the prices consumers pay for certain goods and services over time. It reflects a range of people at different income levels, but not every population (such as patients in mental hospitals).
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Inflation has had different causes over the years, but the recent upward trends can almost entirely be linked back to the way the pandemic forced so many industries to grind to a temporary halt. According to WhiteHouse.gov, inflation is expected to increase in the near term due to three different temporary factors: “base effects, supply chain disruptions, and pent-up demand, especially for services.”
It explains that base effects refers to “when the base, or initial month, of a growth rate is unusually low or high.” So in the key months of the pandemic setting in, between February and April 2020, average prices fell 0.5%. Half a percent is actually quite a large price decrease, which created a low base.
Supply chain disruptions were the expected side effects of businesses and industries being forced to temporarily suspend operations or limit the number of workers they could have on hand.
And, of course, when the supply of products becomes limited (i.e., the great toilet paper hoarding of 2020), demand surges.
It is expected that these factors are “transitory” and will fade over time as the economy recovers, but in the meantime, people will notice higher prices for their basic items.
GOBankingRates drew from the Bureau of Labor Statistics “Consumer Price Index for All Urban Consumers (CPI-U): U.S. City average” report from September 2021, which measures changes in the costs of essential goods and services. We looked at 22 essential goods and services whose prices have increased, and which give a hint as to how much of a pinch consumers may feel in the near future when they shop for these goods and services.
Perhaps the most essential of all goods that have increased in price are a variety of foods people eat on a regular basis. Meats, poultry, fish and eggs, for example have been climbing in price since July, up 2.2% since last year. “Food at home” is up 2.6% compared with last year, and not showing any signs of slowing, according to an August article from The Washington Post.
Part of the reason for this is continuing supply chain backups resulting from the pandemic shutdowns. The Fed suggests that it may take time for many of these backlogs and demands to ebb and find their feet again.
Beef and veal prices increased by 3.3% from August to September 2021, according to the USDA, and pork prices increased by 1.2%. These increases are on the heels of months of price increases for both categories. The increases are a result of high domestic and international demand, increased feed costs and supply chain disruptions.
Egg prices are 3.3% higher in 2021 than in 2020. This appears to be from a surge in foreign demand, particularly South Korea, where an avian influenza took a toll on the egg supply.
Other food items have increased by a less significant margin. Nonalcoholic beverages went up by 1.2%, cereals and bakery products went up by 1.1%, dairy and related products up by 0.7%, fruits and vegetables up by 0.6%.
Household energy as a total category has gone up on the consumer price index by 1.3%. This index measures changes in the prices of the energy products that are used to heat, cool, cook, light and power appliances and household equipment. Included in this are propane, kerosene and firewood; energy services; electricity; and utility gas service. In specific, fuel oil is up 3.9% and electricity is up 0.8%. A related area, water, sewer, and gas services are up by 0.5%.
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If your same tank of gas seems steeper than usual, you’re not wrong. Gasoline went up by 1.2% on the CPI. According to the Energy Information Administration, this shakes out to an increase of 5.5 cents per gallon for regular-grade gasoline, putting the average at $3.32 per gallon. That’s also 54.5% higher than gasoline at this same time a year ago. The most likely factor for these increases, according to CBS News, have to do with lower global production and, of course, supply disruptions in the U.S. resulting from the pandemic, storms like Hurricane Ida and even a recent cyber attack on a gas pipeline.
Primary residence “equivalent rent” or the amount a homeowner receives when renting a home, increased 0.4%. According to Reuters, that is the biggest gain in five years. Rent of primary residences also surged by 0.5%, considered the largest increase since May 2001.
Other kinds of goods and services that have gone up include internet, at 0.6% increase; shelter, up 0.4%; wireless telephone service, up 0.4%; and medical care commodities, up 0.3%.
The gist of this data is that things will temporarily be more expensive in a lot of areas, but, assuming that most businesses and industries can remain open and functioning normally, this period of inflation should pass eventually.
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Last updated: Oct. 25, 2021
Methodology: GOBankingRates used the Burau of Labor Statistics “Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average” September 2021 data to measure changes in the cost of essential goods and services. Data points measured were: percent changes month-over-month for August and September 2021, year-over-year from September 2020-September 2021, and the largest/smallest seasonally adjusted percent change for each category. The data was then scored and weighted, with September 2021 expenditures holding most importance. All data was collected and is up to date as of Oct. 14, 2021.