Portion control, raising interest rates among limited options to stop inflation
MINNEAPOLIS -- It's the busy lunchtime hour outside U.S. Bank Stadium where Teng Thao's food truck business sizzles and sours at the same time.
"Even though you make so much, the money you take out is too much to make a living," Thao told WCCO. "But we have no choice."
Such is the predicament of work in an economy blessed by record job growth but plagued by inflation, which at 8.6% is at the highest year-to-year level since 1981, according to a new report released Friday by the U.S. Department of Labor. The jump in the Consumer Price Index, a wide-ranging survey of how much goods and services cost, came most from the spike in costs for food, gasoline and rent.
"The meat and the chicken before the pandemic was $45 for 40 pounds," Thao lamented. "Today it's $107 -- so the price has doubled."
The stock market took a deep dive on Friday after the CPI was released: the S&P 500 dropped 117 points, or 2.9%, to 3,901. The Dow Jones industrial Average dropped 2.7%, and the tech-heavy Nasdaq sank 3.5%. The steep decline marks the eighth week of losses in the past nine weeks for the major stock exchanges.
To help stabilize costs -- for themselves and for consumers -- some companies are engaging in "shrinkflation," where they cut back on product but list it at the same price. Examples include Kleenex (65 to 60 tissues), Chobani Flips yogurts (5.3 oz to 4.5 oz), and Gatorade (32 oz. to 28 oz.), among others. Earlier this year, Domino's Pizza announced it was reducing it's 10-piece chicken wings order to eight pieces for the same $7.99 carryout price, citing rising chicken prices.
For the Federal Government, the options to help stop the bleeding are thin; the U.S. Federal Reserve meets for two days next week, and most economists and analysts expect the central bank to raise its main borrowing rate by another half point. While the Fed no longer uses CPI data to frame its policy, analysts say the higher-than-expected inflation numbers make a strong case for additional rate hikes.
By making it more expensive for people to borrow money, the idea is people won't be dolling out as much cash on big items like houses and cars. There is a risk, however, that too sudden a drop in spending could provoke a recession.