Eric Martin’s grocery cart looks different than just one year ago.
“We’re having to cut down on meats,” Martin said. “…We’re being very selective about what we purchase. We’re going basically with the store brands or generic brands instead of the name brands to try to save some money.”
Martin, a retiree, living in Gadsden, is on a fixed income and says he must make these changes to compensate for the rising costs of everyday items like groceries.
Prices are rising across the board on items ranging from food to apparel to gas. New data from the U.S. Bureau of Labor Statistics shows prices were up 8.3 % nationwide in April, compared to April of 2021. Inflation was up even higher in the South, rising at a level of 8.8 % compared to a year ago.
“We have to cut out a bunch of stuff,” Martin said. “We have to increase the thermostat for air conditioning because we’re trying to cut down on the power bill. We’re trying to go less because of gas expenses. You can’t afford the gas. It has impacted our budget considerably.”
Stephen Miller, an economist at Troy University, said the country is experiencing “the highest inflation since the early 80’s. That’s pretty significant. For many people who are adults today, they have no memory of higher inflation.”
Miller said we are “four to five times” over what would be viewed as normal inflation over the past several years.
The South’s 8.8 % inflation measurement is calculated by looking at the price increases in a variety of categories.
For example, the cost of food is up 9.3 % in the South. When you specifically look at meats, poultry, fish and eggs, those prices are up by 14.1 % in this region.
The U.S. Bureau of Labor Statistics also shows housing is up in the South by 7%. Apparel is also up 7%.
Gasoline, one of the biggest drivers of the high inflation, is up 45% in the South, compared to 44% nationwide.
Miller explained that Inflation tends to impact lower-income families more significantly than other income brackets.
“When people have relatively tight budgets, food, fuel and housing are all significant portions of a typical household budget,” Miller said.
Alabama wages rising at slower rate than inflation
Many workers aren’t getting a wage increase to make up for the inflation they’re experiencing. If prices rise at a faster rate than paychecks, workers lose purchasing power.
Wages in Alabama have gone up over the last year but not as much as inflation has.
According to the Alabama Department of Labor, Alabama workers earned an average hourly wage of $28.04 in March 2022, a 5.9% increase over the previous year.
“As inflation works its way through the economy, wages eventually rise to match,” Miller said. “…But it’s a lag. It can be a long lag. It can take a few years. It definitely takes months before you start to see wages increase. It’s going to take some time, probably two or three years before most wages have adjusted - and that’s tricky.”
He noted not all employees will see a raise so high.
“It’s just like having your wage reduced,” Miller said. “If there’s price inflation, especially for household items you buy every week or every month, it’s the same thing as having your income cut.”
Why is inflation so high?
Inflation is often described as too much money chasing too few goods.
“When you have more money chasing the same amount of goods and services… that means something has to adjust in terms of the market,” Miller said. “And what has to adjust is prices have to go up.”
He said a more complicated question is how did that money enter the economy. He said the massive stimulus bills and checks sent out during the pandemic played a role.
“It’s a combination of the monetary policy and the stimulus spending and the increase in extended unemployment benefits and all the ways money found its way into people’s hands over the following year and a half,” Miller said.
There have also been supply chain issues like delays in unloading cargo ships and pandemic-related shutdowns at home and overseas. These issues have decreased the amount of goods available and also contributed to rising prices.
“Supply chain issues certainly lead to higher prices, but in terms of overall inflation it's more that inflation allows prices to rise more quickly in markets where supply was limited,” Miller said. “This is part of the reason economists sometimes look at ‘core inflation’ because food and energy, especially oil, are vulnerable to temporary supply chain disruptions.”
"Core inflation" is another way inflation can be measured. Core inflation also shows how costs of goods have risen, but does not include food or energy prices. According to the U.S. Bureau of Labor Statistics, the annual core inflation rate in April was 6.2 %.
“Sometimes people exclude food and energy because they can be extremely volatile in the short run and might obscure the 'core' underlying trends,” explained Art Carden, an economist at Samford University. “If gas is really expensive one week but really cheap the next, we might not be able to see what’s really going on inflation-wise by including gas prices.”
Local governments feel the pain
From the increasing prices of road and infrastructure projects to the rising costs of services like garbage collection, local governments are facing difficult decisions, too.
“What we’re seeing is anywhere from 30 to 50% increase in costs in some of our road projects and sewer rehabilitation projects,” said Cal Markert, Jefferson County Manager. “…. Ultimately, it means we can’t do as much as we originally intended to do.”
Markert said that the county will have to wait to begin some projects.
Right now, Jefferson County leaders are also figuring out what to do about the rising cost of garbage collection sparked by the increasing cost of fuel, truck drivers and trucks. The county’s garbage collection contract is with AmWaste, which also serves many cities across Central Alabama.
“AmWaste has let us know they’re having serious difficulty in not losing money every day, and we’re in the middle of trying to figure out what to do,” Markert said.
Markert says Amwaste may have to get out of its current contract with Jefferson County because the built-in increase to make up for inflation has been far lower than the inflation of today.
Right now, Jefferson County residents who opt into the trash collection service pay $15 a month. Markert said the increase will be passed onto households if the county needs to rebid the contract and pay more for the service.
In time, governments should see revenue rise with inflation to help make up for the increased costs.
“They ought to see higher revenues,” Miller explained. “As wages adjust, there’s going to be … higher incomes, and so there should be higher income tax revenue. If inflation is impacting the housing market, they should see higher property tax revenue. So, anything that inflation affects that leads to a tax revenue source, they should see higher revenue.”
But the timing of any increased revenue collections will lag behind inflation.
For example, in Jefferson County, property tax values are assessed once a year, in October, and collected in arrears.
“A lot of that, including higher wages, is lagging behind the current inflation,” said Miller. “So just like consumers, in the short term, they’re in quite a crunch.”
Can state government help?
Earlier this month, Florida passed a bill offering sales tax holidays on items including fuel, diapers, disaster supplies and tools.
That had some Alabamians asking if help could be offered here, too.
“A lot of states had pretty good revenue recently and that includes Alabama,” Miller said. “Part of that is money coming from the federal government, and one way to pass that onto households is to give them a break on state income tax.”
Others have suggested a reduction or break in state gas taxes.
Rep. Corey Harbison (R- Cullman) said he supports looking at relief options.
"[A]s one out of 105 votes … I’m willing to look at it and see what we can do to help … most of the families in Alabama,” Harbison said. “Obviously, you’ve got to have taxes for the state to provide services and things people are depending on.”
The state legislature’s next regular session is in 2023. If Gov. Kay Ivey calls a special session this summer for any reason, which could include issues ranging from abortion to gaming, Harbison said he would like to see relief options considered as well.
“I think the income tax is a good place to look because a lot of states don’t even have income tax and I think doing some relief with income tax puts the money back to the working Alabamians,” Harbison said.
“We need to figure out a solution if we’re really about the people,” said Rep. Juandalynn Givan (D- Birmingham).
Givan told 1819 News she wants the state to use COVID-19 relief money from the federal government to provide vouchers for citizens that can be used for essentials like groceries, gas and power bills. She said state taxes should also be looked at.
“A moratorium needs to be placed on the gas tax for sure,” Givan said. “I’m not sure for how long.”
Givan also said she would like inflation relief to be included in a special session, if one is called.
Prices to continue to rise
Economists have no crystal ball to tell us what inflation will do in the coming months, but they do have clues.
“The biggest clue is what the federal reserve is doing,” Miller said. “They are tightening. In other words, they’re trying to reduce the growth rate of the money supply.”
But he expects prices to continue to rise, even if inflation drops.
“So be ready,” Miller said. “Prices have not finished rising. They’re going to continue to rise. But the rate may slow down a bit if the federal reserve does what it says it’s going to do.”
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