Which categories have been hardest hit?

Prices have risen in a number of segments of the economy in recent months and the public is noticing it. An indicator of this is that the search interest for the term “inflation” is higher than at any time in the last decade.

inflation seek interest

Recent data from the Bureau of Labor Statistics highlights rising costs across the board and shows that specific sectors are experiencing rapid price increases this year.

Where does inflation hit hardest?

Since 1996, the Federal Reserve has oriented its monetary policy around annual inflation of 2%. For the most part, over the past few decades, US inflation has typically been within a percentage point or two of this target.

Right now, most price categories exceed it, some quite dramatically. Here’s how different categories of consumer spending have fared over the last 12 months:

CPI category One-year change
Energy products 49.5%
Used cars and trucks 26.4%
Energy services 11.2%
New vehicles 9.8%
Tobacco and smoking products 8.5%
Food at home 5.4%
Food away from home 5.3%
Transport services 4.5%
Clothing 4.3%
Shelter 3.5%
Alcoholic beverages 2.2%
Medical treatment 1.7%
Medical goods -0.4%

Of these top categories, fuel and transportation are clearly hardest hit.

Drilling further into the data also reveals more nuanced stories. Below we zoom in on five areas of consumption that have been particularly hard hit, how much prices have risen over the past year and why prices are rising so fast:

Petrol (+ 50%)

Consumers are shaking as prices at the petrol pump have risen by more than a dollar per tonne. gallon compared to the previous year.

Simply put, rising demand and limited global supply result in higher prices. Although prices have risen, US oil production has experienced a slow recovery from the pandemic as US oil companies are on guard against oversupply of the market.

Meanwhile, President Biden has identified inflation as a “top priority”, but there are limited tools available to the government to curb rising prices. For now, Biden has called on the Federal Trade Commission to investigate the role of energy companies in rising gas prices.

2. Natural gas (+ 28%)

The prices of natural gas have risen for similar reasons as petrol. Supply is slowly coming online again, and oil and natural gas production in the Gulf of Mexico was negatively impacted by Hurricane Ida in September.

Compared to the winter before, households could see their heating bills increase by as much as 54%. It is estimated that 60% of US households heat their homes with fossil fuels, so rising prices will almost certainly have an effect on consumer consumption during the holiday season.

Used vehicles (+ 26%)

The global semiconductor crunch is creating chaos in a number of industries, but the automotive industry is uniquely affected. Modern vehicles can hold well over a thousand chips, so limited supply has hampered the production of nearly one million vehicles in the United States alone. This chip shortage has a contagious effect on the used vehicle market, which increased by 26% in a single year. The car rental sector has also increased by almost 40% in the same period.

4. Meat (+ 15%)

Meat producers get a little headwind, and the result is higher prices at the checkout for consumers. Transport and fuel costs take into account rising prices. Limited labor availability is also an issue for the industry, which was exacerbated by COVID-19 measures. As a top category, inflation is high, but in specific animal product categories, such as uncooked beef and bacon, inflation has reached double digits over the past 12 months.

5. Furniture and bedding (+12%)

This category is affected by a few factors. The rise in timber prices together with other raw materials earlier this year has had clear consequences. Aside from materials, shipping these cumbersome items has actually been a challenge due to global supply chain issues, such as portbacks.

How Inflation Can Affect Consumer Consumption

Rising prices inevitably affect the economy as consumers adjust to their buying habits.

According to a recent survey, 88% of Americans say they are concerned about US inflation. Here are the top five areas where consumers plan to cut back on spending:

Money-saving action % of respondents
Cut back on restaurant / take-out meals 48%
Keep my current technology (e.g. phone, tablet) instead of upgrading 30%
Budget food and cut back on grocery shopping 29%
Buy smaller clothes / accessories 29%
Postpone home repairs, renovations or upgrades 23%

Will inflation continue to rise in 2022?

Many experts believe that US inflation will slow down into 2022, although there is no consensus on the matter.

Improved semiconductor supply and a easing of congestion of ports around the world can help curb inflation if nothing goes seriously wrong. That said, if the last few years are any indication, unexpected events can change the situation at any time.

In the short term, consumers will have to adapt to the brand shock.

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