"The point is simply this: it’s very easy to spend a lot more these days on fast food in ways that don’t necessarily show up in inflation data."
As well they shouldn't because, you know, they aren't inflation. Obviously it costs more to get more stuff, or higher quality stuff. That's not inflation; it's just spending more. How, exactly, is government policy supposed to be responsible for that? And how does anybody imagine that any kind of political solution is going to make it stop?
Anyway, the point of the Post article, which you didn't really engage with, is that people aren't very good at gauging inflation because they don't pay careful attention to what they buy. Consequently, they interpret any increase in their spending as an increase in prices, even if sometimes the real culprit is that they're buying something fancier. I don't know if calling this phenomenon inflation qualifies as "misinformation", but it's surely not accurate. It's kind of weird that you are framing an article calling it out as such as some kind of sinister propaganda from the administration. It's just facts, my man.
This reminds me of the argument I've read that people often complain about higher prices for houses without taking into account that houses today are bigger and offer more amenities than houses from decades ago. I've read similar arguments for car prices, where cars today are safer, more reliable, and have more features than cars from decades ago.
Great insight. I have some questions about the last part from a data perspective though.
1. The personal savings rate probably needs some kind of adjustment for demographics to be meaningful in this context. With boomers retiring in droves we should expect that number to be low right now. Does it still look low by historical standards if those effects are controlled?
2. You footnote the fact that the PCE-PCI chart has a weird starting date effect, but say the effect is still there measuring sept-2019 to sept-2023. That's fine, but we need a frame of reference since as you note PCE normally goes up more than PCI. So if it was 30% vs 20% over that period, what was it for say, 2014-2018? Given that the majority of the difference in your chart happens in *one* month out of the 24 months plotted, I feel like more investigation is needed on that one.
So, the Elizabeth Warren "inflation is just corporate greed" narrative has some truth to it...
On the other side, I wonder if a problem is that we're getting less for our money. 5 years ago, that Big Mac meal would come with a larger well-maintained dining room, a play area, and visible employees to help with missing items. Now, it's an order from a kiosk, not much visible help, a tiny dining room with no play area, and a prompt for a tip.
I mean, on one hand, your framing of the situation is certainly reasonable and is a decent explanation for the perceptions being bandied about that would speak about a McD's value meal coming up to some crazy price increase.
However, on the other hand, the framing put out by those trying to take advantage of the message that inflation is out of control - "Look, here's a McD's value meal that use to be $7.50 that is now $14!", is pretty disingenuous given the facts as well if you add in the secondary information that it's a upsold burger that wasn't sold 3 years ago as well as delivery fees, etc.
The thing is, we're still in an economy that's performing well enough to where the fast food chains are able to get away with increasing prices and adding stuff and the people are still buying it because either they can afford the convenience or they really think the extras provide the value they want. That might change if we were in a worsening economy.
I really don't understand why media people feel like they have to go this far to understand why people think the economy sucks, or why they think that it is counterintuitive that people think that. Housing affordability is at its lowest level in recorded history. What more do you need? Housing is necessary to sustain life and fewer people can afford it than ever before. The end. The only thing that is counterintuitive is that literally anyone would expect people to be happy because the GDP is up or whatever even though they can't afford to rent an apartment.
This article touched on this, but one huge underrated portion is that companies and industries tack on non-opt out fees to services.
Maybe this is purely anecdotal and not at all what’s going on, but I had to get my windshield replaced recently. I forgot the exact prices offered to me, but it was a couple hundred bucks. At the counter when it was time to pay, a new “recycling fee” charge was tacked on, which was somewhere over $50. This wasn’t reported to me online, and only appeared when I was going to pay.
Maybe the American economy has browbeaten me into just accepting these add on fees, but I doubt I could have opted out. (I genuinely didn’t ask, so if I could, that’s on me). But this trend of adding fees at the time of payment also has gotten worse and increased spending as well.
A portion of the increased spending is the ubiquitous tipping options that have been added as business transitioned to kiosks and expanded the breadth of business asking for such tips.
What’s missing from here is any acknowledgment of the possibility that people may *want* to be putting more stuff in their baskets.
Not necessarily fast food - I agree it’s annoying how quickly food delivery costs add up. But the idea that overall consumption is up and savings are down could just reflect changes in what people prefer to do with their money. I still don’t think we’re past the post-COVID “revenge spending” in a lot of areas.
Overall this explanation feels as half baked as the article it’s critiquing.
You can also call it The Deplorable, Flyover Country Citizens Theory. The people who don't have to care about whether prices go up a dollar on anything are the ones who are confused.
CEO of Taco Bell spoke to our company, described the imp[act of electronic ordering. TB quickly introduced an app during the pandemic, objective was to minimize direct contact time at the window/counter. Unforeseen side effect - average sale per order for electronic orders was 15%+ higher than orders at window/counter. People ordered more food & higher priced options, maybe because the guy behind wasn't giving them the "hurry the hell up" glare?
I would also add in a couple of related factors: shrinkflation and adulteration.
1. Shrinkflation
The portion sizes are smaller, sometimes in not so sneaky ways. I ordered beef with broccoli at a Thai place a week ago. The to go container was the same size as normal but inside was a mere three pieces of beef on top of a mountain of broccoli.
2. Adulteration
I am pretty sure some of the local restaurants are putting sawdust in their food and I'm only half joking. I ordered all you can eat wings at Crapplebees recently and what you get is a lump of tasteless breading with a tiny nugget of pink slime in the middle.
I think the McDonald's situation is more extreme than you posit, because prices seem to vary greatly depending on the region and exact location of the store. I recently paid $4.89 at a McDonald's on 1-95 in Connecticut for a medium order of fries; a combo meal of a grilled chicken sandwich, medium fries and a medium drink cost $16.00. (Obviously I hadn't looked closely at the menu.) Those are bonkers prices for that food, and you could get actual real food at that price point—a Chipotle burrito, for example. At a McDonald's in New York a couple days ago, I paid $8.50 for a medium coffee and a medium fries. Yes, I'm a glutton for punishment--but these prices have certainly made me think twice about going to McDonald's, and I don't see how they're sustainable.
Nate, I would be very interested to hear your take on the proposition that economic data since covid has been much less reliable, mostly because of response rates/bias in surveys but perhaps for other reasons too? I'd like to say I trust the Fed to figure this all out but since I don't, I'd like to know what light you could shed on the situation. Which data is the most trustworthy, and what grains of salt should we be taking with the rest of it. And this overlaps some (or it should) with today's column, in that we're asking what's the best way to measure what's going on. Thank you as always!
Consumers save less when they feel good about the economy and save more when they are concerned. You see this in the FRED graph: savings rate goes up during and shortly after recessions (gray bands) and falls between recessions. Given this, I’m not sure I buy the low savings rate as an explanation for economic pessimism.
It seems totally plausible that people cut spending on travel and in-person services (massage or mani-pedi stuff) during 2020 and some part of 2021, switched over to more online shopping and ordering food in, and finally went back to traveling, driving, body care, while maintaining their upgraded shopping habits.
People have an incredible ability to get on the hedonic treadmill and get used to anything. In this case, shopping more in 2020 without ever dialing it back.
"The point is simply this: it’s very easy to spend a lot more these days on fast food in ways that don’t necessarily show up in inflation data."
As well they shouldn't because, you know, they aren't inflation. Obviously it costs more to get more stuff, or higher quality stuff. That's not inflation; it's just spending more. How, exactly, is government policy supposed to be responsible for that? And how does anybody imagine that any kind of political solution is going to make it stop?
Anyway, the point of the Post article, which you didn't really engage with, is that people aren't very good at gauging inflation because they don't pay careful attention to what they buy. Consequently, they interpret any increase in their spending as an increase in prices, even if sometimes the real culprit is that they're buying something fancier. I don't know if calling this phenomenon inflation qualifies as "misinformation", but it's surely not accurate. It's kind of weird that you are framing an article calling it out as such as some kind of sinister propaganda from the administration. It's just facts, my man.
This reminds me of the argument I've read that people often complain about higher prices for houses without taking into account that houses today are bigger and offer more amenities than houses from decades ago. I've read similar arguments for car prices, where cars today are safer, more reliable, and have more features than cars from decades ago.
Great insight. I have some questions about the last part from a data perspective though.
1. The personal savings rate probably needs some kind of adjustment for demographics to be meaningful in this context. With boomers retiring in droves we should expect that number to be low right now. Does it still look low by historical standards if those effects are controlled?
2. You footnote the fact that the PCE-PCI chart has a weird starting date effect, but say the effect is still there measuring sept-2019 to sept-2023. That's fine, but we need a frame of reference since as you note PCE normally goes up more than PCI. So if it was 30% vs 20% over that period, what was it for say, 2014-2018? Given that the majority of the difference in your chart happens in *one* month out of the 24 months plotted, I feel like more investigation is needed on that one.
So, the Elizabeth Warren "inflation is just corporate greed" narrative has some truth to it...
On the other side, I wonder if a problem is that we're getting less for our money. 5 years ago, that Big Mac meal would come with a larger well-maintained dining room, a play area, and visible employees to help with missing items. Now, it's an order from a kiosk, not much visible help, a tiny dining room with no play area, and a prompt for a tip.
I mean, on one hand, your framing of the situation is certainly reasonable and is a decent explanation for the perceptions being bandied about that would speak about a McD's value meal coming up to some crazy price increase.
However, on the other hand, the framing put out by those trying to take advantage of the message that inflation is out of control - "Look, here's a McD's value meal that use to be $7.50 that is now $14!", is pretty disingenuous given the facts as well if you add in the secondary information that it's a upsold burger that wasn't sold 3 years ago as well as delivery fees, etc.
The thing is, we're still in an economy that's performing well enough to where the fast food chains are able to get away with increasing prices and adding stuff and the people are still buying it because either they can afford the convenience or they really think the extras provide the value they want. That might change if we were in a worsening economy.
I really don't understand why media people feel like they have to go this far to understand why people think the economy sucks, or why they think that it is counterintuitive that people think that. Housing affordability is at its lowest level in recorded history. What more do you need? Housing is necessary to sustain life and fewer people can afford it than ever before. The end. The only thing that is counterintuitive is that literally anyone would expect people to be happy because the GDP is up or whatever even though they can't afford to rent an apartment.
This article touched on this, but one huge underrated portion is that companies and industries tack on non-opt out fees to services.
Maybe this is purely anecdotal and not at all what’s going on, but I had to get my windshield replaced recently. I forgot the exact prices offered to me, but it was a couple hundred bucks. At the counter when it was time to pay, a new “recycling fee” charge was tacked on, which was somewhere over $50. This wasn’t reported to me online, and only appeared when I was going to pay.
Maybe the American economy has browbeaten me into just accepting these add on fees, but I doubt I could have opted out. (I genuinely didn’t ask, so if I could, that’s on me). But this trend of adding fees at the time of payment also has gotten worse and increased spending as well.
A portion of the increased spending is the ubiquitous tipping options that have been added as business transitioned to kiosks and expanded the breadth of business asking for such tips.
What’s missing from here is any acknowledgment of the possibility that people may *want* to be putting more stuff in their baskets.
Not necessarily fast food - I agree it’s annoying how quickly food delivery costs add up. But the idea that overall consumption is up and savings are down could just reflect changes in what people prefer to do with their money. I still don’t think we’re past the post-COVID “revenge spending” in a lot of areas.
Overall this explanation feels as half baked as the article it’s critiquing.
You can also call it The Deplorable, Flyover Country Citizens Theory. The people who don't have to care about whether prices go up a dollar on anything are the ones who are confused.
CEO of Taco Bell spoke to our company, described the imp[act of electronic ordering. TB quickly introduced an app during the pandemic, objective was to minimize direct contact time at the window/counter. Unforeseen side effect - average sale per order for electronic orders was 15%+ higher than orders at window/counter. People ordered more food & higher priced options, maybe because the guy behind wasn't giving them the "hurry the hell up" glare?
I would also add in a couple of related factors: shrinkflation and adulteration.
1. Shrinkflation
The portion sizes are smaller, sometimes in not so sneaky ways. I ordered beef with broccoli at a Thai place a week ago. The to go container was the same size as normal but inside was a mere three pieces of beef on top of a mountain of broccoli.
2. Adulteration
I am pretty sure some of the local restaurants are putting sawdust in their food and I'm only half joking. I ordered all you can eat wings at Crapplebees recently and what you get is a lump of tasteless breading with a tiny nugget of pink slime in the middle.
I think the McDonald's situation is more extreme than you posit, because prices seem to vary greatly depending on the region and exact location of the store. I recently paid $4.89 at a McDonald's on 1-95 in Connecticut for a medium order of fries; a combo meal of a grilled chicken sandwich, medium fries and a medium drink cost $16.00. (Obviously I hadn't looked closely at the menu.) Those are bonkers prices for that food, and you could get actual real food at that price point—a Chipotle burrito, for example. At a McDonald's in New York a couple days ago, I paid $8.50 for a medium coffee and a medium fries. Yes, I'm a glutton for punishment--but these prices have certainly made me think twice about going to McDonald's, and I don't see how they're sustainable.
Nate, I would be very interested to hear your take on the proposition that economic data since covid has been much less reliable, mostly because of response rates/bias in surveys but perhaps for other reasons too? I'd like to say I trust the Fed to figure this all out but since I don't, I'd like to know what light you could shed on the situation. Which data is the most trustworthy, and what grains of salt should we be taking with the rest of it. And this overlaps some (or it should) with today's column, in that we're asking what's the best way to measure what's going on. Thank you as always!
Consumers save less when they feel good about the economy and save more when they are concerned. You see this in the FRED graph: savings rate goes up during and shortly after recessions (gray bands) and falls between recessions. Given this, I’m not sure I buy the low savings rate as an explanation for economic pessimism.
It seems totally plausible that people cut spending on travel and in-person services (massage or mani-pedi stuff) during 2020 and some part of 2021, switched over to more online shopping and ordering food in, and finally went back to traveling, driving, body care, while maintaining their upgraded shopping habits.
People have an incredible ability to get on the hedonic treadmill and get used to anything. In this case, shopping more in 2020 without ever dialing it back.