Three centuries ago, the Irish author and political commentator Jonathan Swift supposedly said, “Everything old is new again.” That pithy phrase, however, was only a restatement of ancient wisdom. Nearly two thousand years earlier, the author of the biblical book of Ecclesiastes wrote: “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.”[1] Many people living in the United States believe that the tumultuous times in which we live are new and unique. They aren’t. Just consider the opening lines of Charles Dickens’ A Tale of Two Cities, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.”

Those lines could have been written by a modern-day journalist. In fact, journalist David Uberti describes America in very Dickensian terms. He writes, “The third year of America’s inflation fight is widening a split at the heart of the economy. The stock market is soaring, household wealth is at record levels and investment income has never been greater. At the same time, some families’ pandemic-era savings are running dry, and delinquencies on credit card and auto-loan payments have jumped.”[2] In other words, these are the best of times and the worst of times. Uberti continues, “Warning signals are flashing for more low- and middle-income Americans, exposing a division between people whose gains are being whittled down by elevated inflation and borrowing costs and those who are benefiting from high asset prices and bond returns. The crosscurrents are scrambling the outlook for the U.S. consumer — a bedrock of economic growth, corporate business plans and Wall Street investments.”

Inflation, Food, and Politics

In a previous article, I discussed how high food prices could affect this year’s presidential election.[3] It was written before President Biden left the race. However, as political consultant Bruce Mehlman wrote in an email, “With Vice President Harris replacing President Biden as the Democratic nominee, everything changed & nothing changed.”[4] Inflation and high prices will remain a hot topic during the final months of the electioneering season. Economic correspondent Abha Bhattarai explains, “Economic issues are once again top of mind for voters around the country. Despite the economy’s rapid recovery from the pandemic, President Biden has struggled to convince Americans that his policies are improving their finances. In polls, the majority of Americans still say they trust former president Donald Trump’s handling of the economy over Biden’s.”[5] She goes on to note, “Each administration has left its mark: Biden, by adding 14 million jobs in less than three years, bringing the Black unemployment rate to a record low and reducing student loan debt by billions. Trump, meanwhile, presided over a period of low inflation, low interest rates, and low gas prices.” Like it or not, Vice President Harris will have to run on the Biden administration’s record.

Uberti agrees, He writes, “Analysts expect Vice President Kamala Harris will broadly pitch an extension of [Biden’s] agenda, even as many voters blame it for exacerbating price pressures. Former President Donald Trump, meanwhile, has proposed policies including tax cuts and tariffs that many economists warn could buoy inflation going forward. While voters decide who they fault for price hikes and which candidate might offer remedies, America’s economy continues to defy expectations of a slowdown and muscle ahead of other wealthy nations. The U.S. job-creation machine has boosted wages, recently outpacing inflation.” Uberti asserts that the economy relies heavily on the “continued resilience of consumers.” However, consumer resilience is starting to crack.

Journalists Natasha Khan and Theo Francis report, “Midway through the year, leaders of some of the biggest companies are seeing signs of troubles in the world’s two biggest economies. From McDonald’s to Mercedes-Benz, executives are saying that many consumers in China and the U.S. are pulling back on spending. The reasons are different. In China, demand is being drained by a broken housing market, wage pressures and worries about a darkening economic storm. In the U.S., some households, especially those with lower incomes, are feeling pinched after a run of high inflation.”[6] Weak July job numbers in the U.S. sent panic around the globe and stock markets tumbled. According to Uberti, however, it remains a case of the haves versus the have nots. He explains, “Middle- and lower-income Americans generally faced faster inflation than the affluent from 2006 to 2023, according to a Labor Department analysis, thanks in large part to housing and insurance prices. New York Fed researchers say aggressive moves to fight inflation also disproportionately hurt the poor through higher borrowing costs and a weaker labor market. Those slow-moving factors have ground down many households’ budgets.”

Although voters seem more than willing to attribute inflation and high prices to the policies of one or the other political parties, other factors played more significant roles. Back in 2023, Ben Bernanke, Distinguished Senior Fellow at the Hutchins Center at Brookings, and Olivier Blanchard, Senior Fellow at the Peterson Institute for International Economics, concluded, “Most of the early action in inflation came from the goods market, in the form of sharp increases in some relative prices, including commodity prices and prices in sectors in which strong demand confronted limits on supply.”[7] On the other hand, Robin Brooks, a senior fellow in the Global Economy and Development program at the Brookings Institution, Peter R. Orszag, Chief Executive Officer at Lazard, and William E. Murdock III, Vice President of the Special Opportunities Group at Lazard, attribute the inflation problem more broadly to the supply chain. They conclude, “Given unprecedented supply chain disruptions, it is increasingly consensus that pandemic-era inflation was largely supply-driven, ,,, with demand-side factors playing a secondary role.”[8]

The Consumer Packaged Goods Sector Reacts

Frankly, consumers don’t care what caused inflation, they just hope prices stabilize — especially food prices. Journalists Gregory Meyer, Rhea Basarkar, and Oliver Roeder report, “From the bakery aisle to the dairy case, and the meat counter to the ice cream freezer, surging inflation for groceries has brought about an unexpected reality: Americans are buying less food at the store. Shoppers have put billions fewer items in their grocery carts in the past few years compared with pre-pandemic levels, resorting instead to a combination of online purchases, bulk buying — and simply consuming less, especially in lower-income households.”[9] They add, “The declines have put pressure on retailers and their vendors to offer discounts. While customers are visiting stores more often, they are purchasing fewer items per trip, analysts say.”

Consumer packaged goods (CPG) manufacturers and grocers are taking consumer reactions and changes in behavior seriously. Journalists Jesse Newman and Heather Haddon report, “Food companies are working on fixes for consumers fed up with high prices, while trying to protect some of the biggest profits earned in years. … Food manufacturers are hiking prices at a slower pace, rolling out more discounts and introducing new products, such as ‘Star Wars’-themed Oreos and Super Mario-shaped mac and cheese. The companies’ moves aim to lure people back to brands that consumers have ditched as prices skyrocketed.”[10] They add, “Americans in the past two years spent more of their income on food than they have in three decades. Food prices have become a hot-button issue on the campaign trail as U.S. presidential candidates and other politicians debate economic issues ahead of November elections.”

Concluding Thoughts

Meyer and his colleagues report, “More than three-quarters of consumers cited prices as the top reason they are purchasing fewer grocery items, according to a McKinsey survey published earlier this year.” Understandably, high prices affect lower income earners more than high income earners. Uberti concludes, “The cumulative impact of higher prices and borrowing costs is starting to curb some Americans’ ability to keep up.” That’s not good news. And there is little good news in sight. In a February interview on CBS’ “60 Minutes,” Federal Reserve Chairman Jerome Powell acknowledged, “People are experiencing high prices. If you think about the basic necessities, things like, you know, bread and milk and eggs and meats of various kinds, if you look back, prices are substantially higher than they were before the pandemic. And so, we think that’s a big reason why people are, have been relatively dissatisfied with what is otherwise a pretty good economy.”[11] And Chairman Powell had some bad news for people looking for prices to fall. He said, “Some food prices that incorporate the price of commodities, grains and things like that, those can come down. But the overall price level doesn’t come down. It will fluctuate. … In aggregate, the price level doesn’t tend to go down except in fairly extreme circumstances.”

With the economy cooling, interest rates are likely to decrease in the near future. Prices, however, are likely to remain high. To paraphrase Dickens, it is the best of times, it is the worst of times. It is the spring of hope, it is the winter of despair. We have everything before us and we have nothing before us. How you see the future depends on whether you are one of the haves or one of the have-nots.

Footnotes
[1] Ecclesiastes 1:9 KJV
[2] David Uberti, “The Haves and Have-Nots at the Center of America’s Inflation Fight,” The Wall Street Journal, 30 Jul 2024.
[3] Stephen DeAngelis, “Food Inflation, Part One: High Food Prices Could Impact National Elections,” Enterra Insights, 11 June 2024.
[4] Bruce Mehlman, “Six-Chart Sunday (#27) – Everything Changed & Nothing Changed,” 28 July 2024.
[5] Abha Bhattarai, “Biden’s economy vs. Trump’s, in 12 charts,” The Washington Post, 23 December 2024.
[6] Natasha Khan and Theo Francis, “Burgers, Botox and Birkins: Consumer Pullback Hits China and U.S.,” The Wall Street Journal, 4 August 2024.
[7] Ben Bernanke and Olivier Blanchard, “What caused the U.S. pandemic-era inflation?” Brookings Institution, June 2023.
[8] Robin Brooks, Peter R. Orszag, and William E. Murdock III, “The lagged effects of COVID-19 supply chain disruptions on inflation,” Brookings Institution, 1 August 2024.
[9] Gregory Meyer, Rhea Basarkar, and Oliver Roeder, “US shoppers tighten their belts in a most unlikely place: the grocery store,” Financial Times, 22 June 2024.
[10] Jesse Newman and Heather Haddon, “After Years of Raising Prices, Food Companies Hit Consumers’ Limits,” The Wall Street Journal, 1 August 2024.
[11] Scott Pelley, “Jerome Powell: Full 2024 60 Minutes interview transcript,” CBS 60 Minutes, 4 February 2024.