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Michigan's Price Hikes Some Of The Worst In The Country!

Michigan's Price Hikes Some Of The Worst In The Country!

by John Clore

A week ago


The Detroit Free Press wants us to believe that the price hike and economic downfall is Covid related, and has nothing to do with the MEGA SPENDING done by the Biden Administration.  The Biden Administration is giving billions of dollars away in their "Build Back Better" program.  Printing money at record highs to ensure inflation while devaluing the Dollar.  Not to mention, the millions of illegal immigrants coming across the border, who are given things like, money, clothing and housing! 

Detroit Free Press - Is it a relative blip? Or a never-ending cycle of higher prices on the horizon for consumers? 

Inflation is heating up in the headlines as prices climb higher for things like bacon, rent, chicken wings, gas at the pump and both new and used cars and trucks. 

The shock effect in the Midwest is even worse for consumers when they head to restaurants, the supermarket and the gas station. In the Midwest, including Michigan, the consumer price index jumped by 6.6% in October from a year ago. 

For the country, the CPI soared 6.2% in October from a year ago -— hitting at a 31-year high.  

The Midwest tied with the South, which also saw a 6.6% hike in the past year, when it came to price hikes in the latest round of inflation data.

By contrast, the Northeast region was up 5.4% and the West region was up 6% over the past year. 

We're not saying, of course, that you'll suddenly find bargains by moving from the Midwest to New York or San Francisco. The regional data reflects that prices rose faster in certain areas, not the actual cost of living in an area.

The index measures a fixed market basket of goods and services. And frankly, inflation data took a back seat for decades to other closely scrutinized economic indicators — like the Dow Jones industrial average, consumer sentiment and the unemployment rate.

But if inflation gets out of control, many people end up losing money when their wages can't keep pace with how fast their bills are going up. They may be forced to slash spending on enjoyable activities, such as going on vacation or eating out.

Lower income families are driven to cut out some necessities. And some may find themselves deeper in debt — particularly if inflation leads to far higher interest rates in the future.

"People who have never lived through inflation often suffer from what economists call 'money illusion,' " said Robert Dye, chief economist at Dallas-based Comerica Bank.

"That means they may feel good about getting a 3% raise," Dye said, "while not realizing that inflation is running at 6% a year and their purchasing power is going backwards."

Oddly enough, inflation has not been an extensive problem for roughly 40 years. "More than half of the U.S. population has no memory of any substantial inflation," said Charles Ballard, professor of economics at Michigan State University. 

Think about that for a minute. While many college students and grads certainly saw tuition climb, many have not had to worry much until lately about price hikes on clothing or food. 

Right now, how much inflation has you running scared depends on where you live, what you buy, what you eat, and what you remember of accelerating inflation in the late 1970s.

It is, though, a riveting story of how supply and demand can get terribly out of whack. 

Inflation hotter in the Midwest

Anyone who pulls up to the gas pump — and admittedly some are doing that less often if they're now working remotely — can see one of the drivers of higher prices. 

In the 12-state Midwest region, energy prices — which includes gasoline, electricity and natural gas — jumped 33.3% in October over the last 12 months, according to the U.S. Bureau of Labor Statistics.

That's largely due to a spike in prices for gasoline — up 53% in the Midwest over the year. 

The Midwest region is composed of Michigan, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.

Food — which includes items you buy at the supermarket as well as what you spend at restaurants and takeout — was up 6% in the Midwest over the year. In that category, there was a 10.9% spike in the prices of meats, poultry, fish and eggs.

Prices for used cars and trucks in the Midwest region went up 26.1% year over year; new cars and trucks were up 9.8% over the year. 

In Michigan, the average price for a gallon of gas was $3.39 as of Nov. 15, according to GasBuddy.com. That was down 5.2 cents on average from the week earlier when gas was nearly $3.45 a gallon. 

In the past year, the average price of gas went up $1.33 a gallon from an average of $2.06 in Michigan in mid-November. 

Patrick DeHaan, head of petroleum analysis at GasBuddy.com, attributes some of the price hikes in the past year to a simple lack of demand a year ago, which drove prices down. 

Michigan, for example, had stringent COVID-19 restrictions on the number of people who could be eating or drinking together in bars and restaurants. In late October 2020, restrictions went into place that required that no more than six diners could be present at a table at a bar or restaurant in Michigan. 

A year ago, we weren't looking at anything close to the giant gatherings like the Rolling Stones concert at Ford Field on Monday. 

"The country wasn't vaccinated," DeHaan said. 

As COVID-19 vaccines became more readily available in the spring, and more people became vaccinated, businesses and consumers gradually edged back to lives that resembled something a bit closer to normal. 

DeHaan does not see gas prices at the pump hitting $4 a gallon in Michigan this year or next.

"I do think we'll see more relief before Thanksgiving," he said. 

DeHaan backs up the argument for a trend toward lower gasoline prices, noting the ongoing plans by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

The group made record production cuts in 2020 as we saw oil demand collapse from the global economic fallout due to the pandemic. In the U.S., the troubling COVID-19 recession officially lasted two months, ending in April 2020. 

OPEC+ has continued to raise output by 400,000 barrels per day each month. The next meeting is Dec. 2. 

DeHaan said he believes that the trend toward rising gas prices — and inflation — will taper off in the coming months.

"As these bumps in the economy, as these bumps in manufacturing, get straightened out, I do think inflation will start to slow down," DeHaan said.

What's interesting is that if you go back 10 years, gas prices in the Midwest are actually down 2.5% from October 2011 through October 2021, according to research by Paul LaPorte, economist for the U.S. Bureau of Labor Statistics in the Office of Economic Analysis & Information in Chicago.

DeHaan noted that from 2011 through 2014, OPEC had a tighter balance on supply, which kept prices higher. In October 2011, for example, Michigan drivers saw the average around $3.45 or higher for several days. In mid-October 2011, the average was around $3.48 a gallon. 

Why are so many prices going up? 

Much of what's going on today is being driven by the economic upheaval that arose during the pandemic. 

Nearly two years ago, our everyday lives changed dramatically as the fight against the coronavirus began. Since then, we've seen an uneven economic recovery, as many who lost jobs in 2020 try to catch up on old bills and others who kept working have more money to spend. 

"Consumers, flush with money they did not spend last year, want to splurge,"  Ravi Anupindi, a professor of operations research and management at the University of Michigan's Ross School of Business, said in a faculty Q&A on higher prices in the holiday season. 

"This is the classical bullwhip effect that ceases to stabilize as the supply chain is being subjected to multiple shocks." 

Demand has been faster than anticipated, he noted, as many countries recover. 

Rising energy prices — such as higher costs for gasoline, transportation, fuel oil and electricity — tend to be pushed onto consumers in the form of higher prices for things like groceries and other goods. A term that's often used is "cost-push." 

"Energy prices are pushing inflation as OPEC keeps oil production restrained relative to global demand," said Comerica's Dye. 

The COVID-related shutdowns, he said, began disrupting supply chains in early 2020 and it's been an ongoing struggle to get key parts to manufacturers and others. The ongoing bottlenecks are creating shortages — which drive up prices for cars and then used cars when people can't afford new ones. 

On top of that, the stimulus packages out of Washington — including the monthly advance payments for child tax credit — left many families with more cash to spend, driving the demand for many goods. The ability to spend on experiences like travel and entertainment was limited in many cases by the pandemic. 

And yes, companies are paying more for labor, requiring them to raise prices in order to maintain profit margins.

"COVID has been such a big disruption that it has caused millions of workers to do a once-in-a-lifetime reevaluation of their connection to the labor force," Ballard said.

Some people ended up deciding that they couldn't keep working two or three jobs to work 55 or 60 hours a week. Others decided it was time to retire. 

"Compared to what I think most analysts expected, we have had more trouble with getting the right worker in the right place at the right time," Ballard said.            

The U.S. economy has not seen a situation like this in the past, much like everything else associated with the pandemic. 

"It’s both the messed-up supply chains and the stimulus money," Ballard said. "A lot of people have money to spend, and the supply is often not sufficient to meet the demand.  That’s a formula for upward pressure on prices." 

Ballard noted that the disruption to supply chains due to the COVID-19 pandemic is significant and deep. 

"It has taken longer to put the pieces back together than had been hoped," he said.

Different parts of the world, of course, have had surges of COVID at different times and caused disruptions in manufacturing and that have hurt the supply of some items. 

"The other thing that has gone worse than hoped is that so many people still have not been vaccinated," Ballard said.

"The rate of vaccination was very good in March, April, and May," he said. "If it had continued at that same rate in the summer, COVID cases would now be very rare in the United States."

But Ballard expressed concern that economic disruptions will continue, perhaps at a less severe level, as long as a group of the U.S. population refuses to get vaccinated.

What was so bad about the '70s?

Consumers weren't just dealing with skyrocketing prices back in the 1970s for everything from gas to meat. They were also fearful of losing good paying jobs as companies shut down operations. We saw "stagflation" then when the economy was sluggish, unemployment was high and prices were through the roof. 

Economist Stuart Hoffman, who spoke at the Detroit Economic Club in early October, dismissed the notion of stagflation ahead. 

Hoffman, who is the PNC Financial Services Group senior economic adviser, said the country is likely to avoid a recession in 2022 and 2023 after more fiscal stimulus from Washington. 

The passage of the President Joe Biden's infrastructure package to address the country's roads, bridges and broadband initiatives is likely to support economic growth.

And he said the economy would also be helped by a separate compromise bill, which has yet to be passed, involving another $1.5 trillion to $1.75 trillion in social policy spending on education, health care, climate and other programs. 

How bad could inflation get? 

While inflation will remain a concern, it's unknown how bad things could get or how quickly they could improve. Much will depend, experts say, on how imbalances in the supply chain improve and how oil prices shake out. 

A Goldman Sachs report on the economic outlook predicted that the "current inflation surge will get worse this winter before it gets better." 

Short term, we've not seen the end of startling CPI numbers. 

Comerica's Dye said we could still see upward pressure in the year over year comparisons in the next few months. 

Even so, he said, "I expect the month-over-month gains in the CPI to moderate in November and December." 

"Two factors are key in the inflation outlook for the first half of 2022," Dye said, "supply chain strain and global oil demand."

He's expecting that the pressures on the supply chain would gradually ease for most industries through the first half of next year. He also expects energy prices to remain near current levels.

The Federal Reserve, which is keeping short-term interest rates low to shore up the economy, said in its November statement that "inflation is elevated, largely reflecting factors that are expected to be transitory."

"Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors," the Fed stated.

Some aren't expecting higher rates to hit soon. PNC, for example, forecasts that the Fed will wait until December 2022 before beginning to raise short term rates and then go with a quarter percentage point hike. 

Still, how do you define transitory? Is it six months? Less than a year?

No one has a specific answer for a generally accepted definition. 

"My view is that anything that happens for less than six months, and then goes away, is definitely transitory," MSU's Ballard said.

An example of a transitory shock, Ballard said, was the earthquake and tsunami in northern Japan in 2011. The natural disaster had ripple effects through various supply chains for several months, Ballard said, but it was mostly in the rear-view mirror by a year out.

"If something lasts for more than a year, it gets hard to call it transitory."  

Even though some experts hold onto the hope that inflation won't surge out of control, it won't exactly stop people from doing a double-take when they hit the checkout to buy groceries. 

 

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