A recent poll tells us that 66 percent of Americans think groceries are unaffordable. Is this a reasonable position? Let’s add some context.
Figure 1 is one way to look at the problem. It shows the cumulative 7-year inflation rate for groceries, going back almost 100 years. 7 years is an arbitrary time period, but I think it makes sense: it can reasonably be described as “recent memory”; right now it encapsulates the period going back about 6 months before the pandemic; and it has a few time periods of around 100% grocery inflation and a few with close to 0%.
Figure 1
First things first: grocery price deflation over a 7-year time horizon is highly unusual. The only time it happened was the 1930s, a time when you had general price deflation and groceries followed that pattern. It was also a pretty bad time for the economy and society. I’m not saying you can’t have general food price deflation with a major depression, but it doesn’t show up in the historical record going back over 100 years.
Now to the present: the most recent 7 years look pretty bad. In absolute terms, 33 percent grocery inflation is above the long-run average of 25 percent, and definitely above the average of the last 40 years of 21 percent (for most adults, the past 40 years is as far back as their memory goes in terms of being acutely aware of grocery prices). Yes, there have been a few time periods with higher grocery inflation, notably the two World Wars and the 1970s.
But the really important context is the 7 years prior to the pandemic, when grocery inflation was so low (4-5 percent every 7 years) that it probably felt like 0% to most people. That was the recent experience people had become accustomed to before the pandemic. The only other time since the Great Depression it was that low was the late 1950s through the 1960s — though that 15-year window is bookended by two periods of around 100% grocery inflation!
Of course, there is much more context we could give, and I have certainly written about this topic before trying to give that context. Relative to wages, groceries are more affordable than they have ever been. Almost every grocery item the BLS tracks is more affordable than the 1980s relative to wages (sorry bacon lovers). Food inflation in the US since the pandemic hasn’t been as high as many of our peer nations and our food spending is probably the lowest in the world as a percent of income. Americans are essentially spending the lowest share of their income on groceries ever (though there hasn’t been much improvement in about two decades).
To all those other contexts I have written about in the past, one more bit of context to add about this 7-year time period is that both median and average earnings grew by about 38 percent, which is more than grocery prices have increased.
Figure 2
Still, even given all that context, which I think is very important, it is reasonable for some people to grumble about grocery prices. Thankfully, the big burst of grocery inflation seems to be well over now. If we look at another arbitrary time-frame, such as 3-year grocery inflation, it has only been about 6 percent recently. That’s still above pre-pandemic, when it essentially was 0 percent, but 6 percent is well below the long-run average of 11 percent, and even below the 40-year average of 9 percent. At the peak of the 1970s inflation, the 3-year grocery inflation rate hit 47 percent, more in 3 years than we have seen in the past 15 years (42 percent).
Six percent grocery inflation over 3 years is a pretty normal rate of inflation, especially considering that average and median wages have grown by around double that rate. Let’s hope it stays this low, and maybe in another 7 years those surveys of grocery affordability will look much more rosy.
Economist Writing Every Day 