A New Look at the Inflationary Thanksgiving | AEP

Around this time last year, I wrote an article titled “The horrors of a non-inflationary Thanksgiving“. In it, I showed that consumers looking for traditional holiday foods, but choosing only those products that have not increased in price compared to the previous year (from 2020 to 2021), would be faced with a poor choice of products. Between November 2020 and November 2021, the only items that did not increase in price were hot dogs (no buns or condiments), melted cheese, fresh salad (no other vegetables or salad dressings) and the very general category “cookies” . Without payment, there would be no turkey, gravy, bread products (buns, rolls, or toppings), and no cranberry sauce. As for drinking, the only drink with a stable price at that time was water.

However, in November 2021 US consumer price index (headline, year on year) reached only 6.2 percent. Price Index for Personal Consumption Expenditure (annualized) amounted to 5.2 percent. In particular, the Federal Reserve continued to refer to nascent inflation as “temporary.” In a sense, they were right. The general price level in the US was transition from high to much higher levels.

Given the policy lag, prices continued to rise in the months following the start of restrictive monetary policy measures that began in March 2022. There are currently signs of disinflation in some commodities, but prices for services and housing continue to rise. If a year ago the yield on ordinary 10-year US Treasury bonds was 1.58 percent, then on November 18 it was 3.79 percent.

Shown here is the five-year price trend for Thanksgiving dinner. All are based on Bureau of Labor Statistics (BLS) index values ​​and are not seasonally adjusted. In the data series below, whites track prices for turkey (“and other poultry”); pink for bread; yellow for sauces and gravies; blue for frozen vegetables; orange for canned fruit; and turquoise for frozen and chilled baked goods.

(Source: Bloomberg Finance, L.P.)

Below are the percentage changes from 2020 to 2021 and from 2021 to 2022. Because November index values ​​are not released until mid-December, yearly values ​​are based on the October BLS releases.

October October October
from 2020 to 2021 from 2021 to 2022 from 2020 to 2022
US CPI for other poultry meat, including Turkey 1.68% 16.89% 18.86%
US CPI for bread 2.29% 14.78% 17.40%
US CPI: cookies, muffins and muffins 4.76% 13.57% 18.97%
US CPI Potato 1.66% 15.19% 17.10%
US CPI for frozen vegetables -0.30% 16.74% 16.39%
US CPI for fresh vegetables 1.69% 8.28% 10.11%
US CPI for canned fruit 2.87% 18.68% 22.08%
US CPI Sauces and gravies 1.76% 14.57% 16.58%
US CPI for food outside the home 12.04% 8.59% 21.67%

As also shown, people who choose to give Thanksgiving dinner to restaurants will still face sharply higher prices this year. And highlighting the pervasive difficulties in the economic dimension, the use of bread as a filling substitute is misleading. In fact, the US Farm Bureau reports that the price of a 14-ounce bag of stuffing increased by 69 percent from the beginning of 2022.

Overall, the American Farm Bureau Federation estimates that:

the cost of buying a turkey and side dish to feed a family of 10 is the highest in years…[ir] The 37th Annual Poll Shows The Average Cost Of A Classic Thanksgiving Banquet This Year Is $65.04, Up $10.74, Or 20 Percent, From Last Year’s Average Of $53.31 .

But Thanksgiving-related expenses go way beyond food supplies. Many Americans go to celebrate the holiday with family or friends, so gas prices are relevant. Some will travel by bus or train, while others will fly, all of which will increase in price. Haircuts, dry cleaning and pet grooming are additional charges. Price changes for one and two years associated with these additional costs are shown below.

October October October
from 2020 to 2021 from 2021 to 2022 from 2020 to 2022
Gasoline AAA (U.S. average) 51.64% 20.00% 81.97%
US CPI Gasoline, regular unleaded gasoline 51.28% 17.07% 77.11%
US CPI airline fares -4.63% 42.89% 36.27%
US CPI Other intercity transportation 4.60% 4.07% 8.85%
US CPI for haircuts and personal care services 4.31% 5.59% 10.15%
US CPI Pet services, including veterinary medicine 3.93% 10.67% 15.02%
US CPI Laundry and dry cleaning 6.92% 7.19% 14.61%

As always, the rise in prices has many reasons: supply problems caused by the war in Ukraine (especially for grain), the outbreak of bird flu, etc. But these are relative changes that the price system mediates, signaling shortages to producers and entrepreneurs at home and around the world. The massive upward trend in the general price level is due to only one factor: the massive expansionary monetary policy efforts being made throughout 2020 and 2021.

The chart below tracks Thanksgiving’s own food index, consisting of prices for turkey, sauce, bread, frozen vegetables, canned fruit, and frozen/chilled baked goods (white) compared to the global M2 money supply (blue, in USD). ) for five years. The staggered appearance of the Thanksgiving Food Index is due to its compilation from monthly data releases.

(Source: Bloomberg Finance, L.P.)

Americans face another costly holiday season due to tight and possibly unnecessary monetary and fiscal programs at the start of the COVID pandemic. Despite recent attempts to present inflation as inevitable or even beneficial, both the rise in the price level and the delay in combating it are entirely dependent on the Federal Reserve.

USCPI funeral expenses and USCPI tax preparation (5 years)

(Source: Bloomberg Finance, L.P.)

And in relation to the traditional notions of inevitability, the prices of both “death and taxes” have risen. Funeral and tax preparation costs have risen by just under 5% and 10%, respectively, over the past twelve months.

Peter S. Earl

Peter S. Earl

Peter S. Earl is an economist who joined AIER in 2018. Prior to that, he worked as a trader and analyst for a number of securities and hedge fund firms in the New York metropolitan area for over 20 years. His research focuses on financial markets, monetary policy and economic dimension issues. He has been quoted by the Wall Street Journal, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and many other media and publications. Pete holds an M.A. in Applied Economics from American University, an M.B.A. (Finance), and a B.A. in Engineering from the US Military Academy at West Point.

Selected publications

“General Institutional Considerations on Blockchain and New Applications” Co-authored with David M. Waugh at The Emerald Guide to Crypto Assets: Investment Opportunities and Challenges (expected), edited by Baker, Benedetti, Nickbakht and Smith (2022)

“Operation Warp Speed” Co-authored with Edvar Escalante in Pandemics and freedomedited by Raymond J. March and Ryan M. Yonk (2022)

“Virtual Weimar: Hyperinflation in Diablo III” in The Invisible Hand in Virtual Worlds: The Economic Order of Video Gamesedited by Matthew McCaffrey (2021)

“The Fickle Science of Locks” Co-authored with Philip W. Magness, Wall Street Magazine (December 2021)

“How does a well-functioning gold standard work?” Co-authored with William J. Luther, SSRN (November 2021)

“Populist Prophets, Public Prophets: Pied Piper Lucre, Then and Now” in financial history (summer 2021)

“Boston’s Forgotten Lockdowns” in American conservative (November 2020)

“Private Governance and the Rules of the Flat World” in Creighton Interdisciplinary Leadership Journal (June 2019)

“The idea of ​​a ‘Federal Job Guarantee’ is expensive, misguided, and growing popular with Democrats” in Investor’s Daily Business Journal (December 2018)

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