By Howard Schneider
WASHINGTON (Reuters) - U.S. Senator John Fetterman, who famously trolled an election opponent's shopping for "crudite" in a discussion of high food prices, on Thursday tried to bring a dose of realism to an inflation debate likely to be a central issue in the upcoming presidential election.
Food prices have risen, with a shock-to-the-pocketbook 20% run-up in the two years between January 2021 and January 2023, the fastest such surge on record and a likely GOP talking point heading into the presidential election campaign.
But, noting a recent internet meme featuring outrage over an "$18 dollar cookie," Fetterman asked Federal Reserve Chair Jerome Powell for context during a hearing before the Senate Banking Committee.
"Is that reflective of our economy?" the Pennsylvania Democrat asked.
"I certainly hope not. I don't do much shopping these days, but that sounds like a pretty expensive cookie," Powell said, adding inflation "has been coming down sharply since the middle of last year."
Indeed prices for food to prepare at home as of January were rising at just a 1.3% annual rate, in line with what has been typical in recent decades and a far cry from the breakout in food costs that occurred when global commodity markets and supply chains were roiled by the pandemic and the Russian war in Ukraine.
And, as it happens, cookie prices have been falling year-over-year for the past two months, Consumer Price Index data shows.
A HARD FEW YEARS
There is no argument that inflation in the last three years has been extraordinary, with consumer prices rising as recently as June 2022 at a 9.1% annual rate, a level not seen since 1981.
While the climb down to the current 3.1% rate has also been fast, Republicans highlight that the higher overall price level is here to stay.
That's true.
But it is pretty much always true -- it is unusual for the overall CPI to decline.
It is also true that different components of CPI behave differently.
Goods prices, in fact, have been falling, returning to a pre-pandemic pattern that helped keep overall inflation low.
And yet, some of the relative price changes that happened during the pandemic don't just pose a hardship, they are arguably stark enough to alter how people behave.
Perhaps the most notable example is housing. The median U.S. home price, at $417,000 at the end of 2023, was nearly 30% higher than at the start of the pandemic.
Current high mortgage rates have created a doubly confounding situation -- first-time buyers are priced out, while current mortgage holders are incentivized to stay in place and not trade into a higher-rate loan. This is a point Republicans are likely to emphasize and which the Biden administration may try to address with new housing proposals.
WILL MEMORIES BE SHORT?
Inflation easing also means recent wage gains stretch farther, allowing some recovery of the purchasing power lost when prices surged.
The rise in "real," or inflation-adjusted incomes, is something the Biden administration has emphasized.
Whether that registers in improved sentiment, however, is another issue.
As with inflation, the details matter. While some pandemic-era wage gains were larger for less well-paid jobs, lower-income households also devote a greater share of their incomes on basics like housing, food and gas, for which prices rose sharply.
Economists and Fed officials have noted "stress" developing among those households. Even if the economy overall is seeing real wages rise, it doesn't mean every family is experiencing the same.