Certain folks would like to tell you that inflation is cured.
And in some ways, if you track inflation by the Consumer Price Index, there is some truth to the thesis that the cost of living has returned to its normal, modestly upward path.
Ponder a California inflation index from my trusty spreadsheet, which averaged four decades’ worth of annual changes in regional price indexes for Los Angeles-Orange County, San Diego and San Francisco.
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By this math, California consumer prices rose 3.1% last year. That’s flat with 2024, equal to statewide inflation’s 40-year average and nowhere near the 6.9% peak of 2022.
Nationally, it’s a similar price picture: 2.6% inflation last year, below 2.9% in 2024, and the 2.8% 40-year average. And certainly not the 8% of 2022.
That all seems rather modest. On to the next challenge, no?
Well, many folks who juggle tight household budgets might disagree with the inflation data showing some normalcy. Inflation’s spike has left lasting anxieties.
Bad flashback
California is expensive enough with a bout of inflation.
The recent cost-of-living surge was especially painful because it was a sharp contrast to what had been “enjoyed” in the post-Great-Recession economy.
Let’s flashback over 40 years.
California inflation averaged 3.3% from 1986 to 2008 – in the ballpark of today’s cost of living hikes.
These were volatile times. The era included three California-heavy price bubbles – real estate in the late 1980s and the early 2000s, and the dot-com bubble in the late 1990s.
Nationally, inflation ran 3.1% in the same period.
Then came the economy-shattering Great Recession and all of its enduring turmoil.
Demand for goods and services tumbled. Housing expenses muted, temporarily. Workers were so happy just to be employed that big raises were rare.
So inflation tumbled. And not just momentarily.
Contemplate consumer prices from 2009 – the bottom of the Great Recession – through 2020 – when a pandemic upended the business climate.
The California price index rose at a 2.1% annual rate over those dozen years. Nationally, inflation ran 1.5%.
To most households, it felt like a cost-of-living nirvana. Then coronavirus shattered that peace.
Production and import challenges slashed supplies. Government stimulus checks boosted demand.
California inflation doubled to an average 4.2% during the past five years. It tripled to 4.5% nationwide.
Let me put this wallet-busting change more starkly.
Think about the cost of that typical California basket of goods and services, as measured by the CPI. It rose by 28% from 2009 to 2020. Then it jumped 23% in the next five years.
Nationally, the 20% gain of 2009-2020 was exceeded by a 24% surge in the next five years.
Yes, your wallet has been whipsawed. That’s a big part of the inflationary frustration.
Disconnected
When bureaucrats or economists think about inflation, they usually ponder the current moderation shown in various price indexes.
However, indexes are just snapshots of what a hypothetical household endures. Everyone’s spending patterns vary.
Also, humans tend to look at their checkbook balances as their price index. Folks rightfully remember “the good ol’ days” – not so long ago – when many items in the shopping basket of life were not so expensive.
That’s a big disconnect.
Another headache is an often-unspoken part of this price puzzle: wages.
Again, there are gaps between what the pay indexes say and individual realities. Also, don’t forget the wrinkle of people living on fixed incomes, a group that often suffers when inflation pops.
Think about the median household income, one measure of a consumer’s cash flow.
Across California, it averaged 5.2% annual growth in the five years through 2024. That’s nearly double the 2.7%-a-year increases of the previous 12 post-Great Recession years. Incomes grew by 3.5% per year from 1985 to 2008.
It was the same pattern nationally: incomes grew 4% over the past four years vs. 2.6% over the previous 12 years and 3.6% over the last 23.
These paycheck rollercoasters parallel inflation’s gyrations.
Of course, consumers cheer rising pay. But bosses have to absorb that cost hike and often increase their prices to recoup higher labor costs.
It’s a slice of the inflation puzzle that politicians, pundits and the public rarely acknowledge: the larger income gains of this era contributed to the surge in inflation.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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