Three cats, two butter huggers, and one new home

Causes of inflation, pt. 1

What were you doing during the pandemic lockdowns? Were you…

·      teaching your kids at the kitchen table?

·      learning how to make sourdough bread?

·      working from home and lamenting the lack of space?

·      looking for a new home? Maybe a new car? Or trying to?

·      remodeling your home? Or adding on?

Maybe you remember the hoarding that caused shortages (and rising prices) in meat, flour, and toilet paper? Or having to upgrade your computer and peripherals to work at home? Or maybe you lost hours on the job staying at home?

I was already stuck at home with a dislocated bone in my foot. In January 2020, one of my kittens, Remy, decided to knock my cane out from underneath me. My foot went one way, the cane went another, and Remy ran off as fast as he could. [1]

I didn’t know the bone was dislocated or that I had a micro-fracture in my second toe, because I couldn’t go to the podiatrist to find out. Worse yet, we were living in a ranch with a split-level side. All the bathrooms were on different floors from the main living area. We’d talked about moving after the stairs became a burden in 2018, when I became disabled. But it wasn’t a good time. And looking for a new home in 2020 was problematic, since we wouldn’t buy a house unseen.

Instead, I spent much of the summer of 2020 buying gadgets for my home, especially the kitchen. Many of them have since gone to Goodwill, but two are in constant use: a chopper that we use a couple of times a month to dice and freeze green bell peppers and onions, and two butter huggers that cap off the ends of butter sticks that are in continuous use.

The butter huggers were the source of endless amusement to my husband and his work buddies. But they were inexpensive, and I don’t have to think about rewrapping the end of a stick of butter when I use it. If you’ve ever tried to rewrap a stick of butter in its wax paper covering, you’ll know what I mean.

But, like so many of you, the house was a real problem. We couldn’t remodel as many of you did. We’d already done that. We needed to move. The pandemic and the hot Atlanta-area market made the process so much harder, especially since we were looking for a mobility-friendly house. We found our new home in June 2021, after we realized that my husband wasn’t returning to the office. The price was over $50,000 more than our initial maximum price.

If we’d waited another year, we’d have faced increasing mortgage rates in addition to even higher prices. The increased demand for new homes sent prices soaring by 47 percent over the last four years. The price of construction materials for remodels and new homes added to the expense.

These increases in demand, from bacon to housing, caused inflation to ramp up. At its peak in June 2022, the inflation rate was 9.1 percent, according to the Bureau of Labor Statistics (BLS).

Causes

What causes inflation? Demand rising can cause prices to rise. So can supply falling. This week we’ll focus on demand, although we’ll learn next week that it was the serious decrease in supply that caused the inflation to rise so much.

When a lot of prices in different markets rise, we get inflation. Many use the phrase “too much money chasing too few goods.” From 2021 on, we had both. During 2023, supply problems started to heal and according to the BLS, inflation had eased from its peak to 3.4 percent in April 2024. Here are some of the reasons that demand rose.

Demand

Demand increased for several reasons. In addition to changing demand for housing as a result of remote work and relatively low interest rates prior to October 2022, we saw:

·      pent-up demand from lockdowns,

·      accrued savings during the pandemic,

·      and increasing wages from the tight labor market.

As we eased out of pandemic-mode, Americans wanted more vacations. According to Nerdwallet, the price of a domestic trip by air went up compared to pre pandemic levels. The price of a rental car rose by 36.1 percent, movies, restaurants by 29.4 percent, theaters and concerts by 22.2 percent, followed by a 3.2 percent jump in average airline fare, adjusted for inflation.

For others though, extra savings from COVID-era stimulus packages and rising wages spiked demand for luxury goods. Even as consumers complained about gasoline prices, LVMH (Moët Hennessy Louis Vuitton) and other luxury brands saw profits soar from 38 percent for Hermes to 61 percent for Richemont (Cartier, Chloe, and Montblanc) in 2022, according to Vox.

We also traveled—to Jamaica on a 40th anniversary trip that we had to put off because of the pandemic. We made do on that trip, but a year later, we splurged on new luggage. None of the pieces were from a luxury brand, but they weren’t cheap. Luggage prices have nearly doubled since 2020.

Continuing the trend, in 2023, Taylor Swift’s Eras tour grossed over one billion in revenue, as fans paid increasing amounts for limited ticket prices. [2] They also paid for special hair and makeup for the event and according to one Swifty from North Carolina who drove to the show in Nashville the total price paid included swag at the show and hotel rooms for the night.

In the next post we’ll look at why supply fell and how that tight labor market arose.

Thanks for reading. I appreciate your taking the time.

Nikki

[1] Remy is on top of the tower. Romy is on the next level. We lost Lufie, who rarely used the tower, in 2023.

[2] The Federal Trade Commission (FTC), pressured by Swift and other performers is investigating the fiasco that allowed scalpers to get many more tickets than fans did in the initial offering, as well as monopoly behavior.