Groceries, gas and real estate: Here’s how CT families are being affected by inflation and what can be done to improve the economy

Back • Publication Date: July 9, 2022 • Education & Employment, Fiscal & Economics

From milk and eggs to rent and home heating oil, Connecticut families are paying more now than they were a year ago.

Connecticut — like the rest of the nation — is experiencing the worst year-over-year inflation in a generation, and experts say that though generalized statistics are instructive, they can often mask actual costs, and from where the largest increases are coming.

The cost of nearly everything is more expensive than it was a year ago, but not every cost rose at the same pace.

For example, the overall cost of food rose by 10.1 percent in northeast cities, according to Consumer Price Index data maintained by the U.S. Bureau of Labor Statistics. The cost of food at home rose by 11.9 percent, whereas the cost of food away from home rose by 7.4 percent.

That means the grocery list that cost $200 in May 2021 increased to $223.80 by May 2022.

A moderately-priced food plan for a family of three was priced at $904.79 in May, according to monthly reports published by the U.S. Department of Agriculture, which do not factor for meals prepared outside the home.

That would be an increase of $103.14 from 2021, based on the Consumer Price Index.

The Consumer Price Index, said Steven Lanza, associate professor of economics at the University of Connecticut, is a way for the BLS to track the fluctuation of costs.

“They have tried to construct an index where they weighed the relative importance of items going into the CPI by what a typical family or household in the U.S. might buy,” he said.

But the CPI is an aggregated statistic, and so it doesn’t fully capture the reality, in part because people don’t all spend the same way.

“The fact is that there are as many price indexes as there are consumers, because we all have our own unique price index, because it depends on the stuff that we buy,” Lanza said, which is why the BLS weighs some costs heavier than others.

“What might be typical for the average family may not at all be typical of what you or I consume in a given day or a given year,” Lanza said. So the best that the BLS can do is just sort of say, ‘An average consumer might spend 40 percent of their budget on housing and related items. So we weight the changes in the cost of housing by 40 percent.”

Energy in various forms were some of the highest overall increases captured in the CPI. Though it has decreased somewhat in recent weeks, the exploding cost of gasoline has increased at a faster clip in the last year than any of the other common household expenditures measured by the CPI.

According to the BLS, the cost of gas increased nearly 50 percent between May 2021 and May 2022.

In real dollars, however, those statistics appear starker. For a family of three living in New Haven, for example, the $4.74 average cost of gas on Wednesday of this past week translates to roughly an added $24 dollars every time they fill up a 15-gallon tank, when compared to last year’s prices recorded by AAA.

The cost of home heating oil increased 19.1 percent year-over-year in Connecting and surrounding states, according to the BLS, though the real cost can translate into a significantly higher cost for families depending on how much heating oil a family uses.

The average cost of a gallon of home heating oil rose 78 percent, from $2.838 in March of 2021 to $5.071 in March 2022, according to the U.S. Energy Information Administration, which aggregates the cost of heating oil during the winter months.

If a typical home in Connecticut uses 880 gallons of heating oil per year, that’s an increase of $1,965.04 year-over-year to heat a home.

Child care

The increase in the cost of child care has been significant for some Connecticut families, but less so for others, said Lauren Ruth, now the research and policy fellow for Connecticut Voices for Children.

The lowest cost child care is often subsidized, while higher-cost child care usually comes out of pocket. The cost of the most expensive child care did not increase much if at all between 2020 and 2022, Ruth said.

“We don’t see any difference in the highest cost between 2022 and October of 2020,” she said.

People spending the least on child care, however, are spending more.

“People at that bottom threshold has been pushed up, presumably by inflation,” she said. “We see costs rising. And, this was what really I wasn’t anticipating, but costs rose drastically for school-aged children.”

Though the cost of early child care did not rise significantly over the course of the pandemic, Rush said that is likely to change. Early child care centers, she said, weathered the pandemic thanks to government subsidies.

“The state and the federal government put a lot of protections in place for child care,” she said. “For many centers, they’ve been able to absorb the costs on their side, rather than shifting those to parents. Or they shifted them to the parents who are paying out of pocket.”

But many of those protections have ended or are being phased out, causing many of those centers to close and, potentially, the increase in the cost of early child care to rise in the state. Ruth said Connecticut has seen a reduction of 173 early care centers between 2021 and 2022.

“There was a drastic number of centers that shuttered their doors and were never able to reopen, because three months without any payment coming in, they just had to close,” she said.

Patrick O’Brien, now the research and policy director at Connecticut Voices for Children, said the average family in Connecticut spends $17,000 a year on childcare, which includes both large families requiring full-time child care and those who require no child care at all.

“That $17,000 could be an understatement if you have a young child in full-time child care,” he said.

Nationally, the BLS said the cost of child care has risen 3.2 percent year-over-year, far below the overall 8.6 percent rate of inflation.

“We’re not seeing, at least at the national level, that child care has shot up a ton,” O’Brien said.

While there may have been “supply-side” issues — the closure of child care centers — there has been a softening of demand as well, with more parents able to work from home, O’Brien said, and child care costs may have already hit a ceiling.

“There’s that much pressure already on the cost of child care. It’s something I think that’s pushing down any potential increase in this cost, too, because if you get to a point where child care just goes too high, then the family potentially pulls out, one or more of the parents potentially goes out of the labor market, and they stop paying for childcare,” he said.

Housing costs

The cost of housing is particularly variable, according to Jeffrey Cohen, the Kinnard scholar in real estate and a professor of finance at the University of Connecticut School of Business.

The BLS said the overall cost of housing in Connecticut and neighboring states increased 6.9 percent year over year, though residents in different portions of the state might be seeing higher or lower increases.

According to Zumper, a website allowing renters to find listings, the median monthly rent for a two-bedroom apartment in New Haven in June was $1,925, an increase of $225 from the previous year.

That same family is likely paying an additional $225 a month to rent a two-bedroom apartment compared to last year, according to median rent prices tracked by Zumper.

The median rent for a two-bedroom in Hartford increased only 6 percent, though a one-bedroom increased 33 percent, going up more than $416 to $1,263, according to Zumper.

In Stamford, the median cost of monthly rent for a two-bedroom apartment increased $515 a 19 percent increase to $3,215, Zumper said.

“Renters are seeing higher rents when they have to renew their leases,” Cohen said.

People who own their homes outright, or who have a fixed-rate mortgage, have seen their insurance rates “skyrocket” Cohen said, because, “the replacement cost of properties has gone way up with the increase in building materials.”

But Cohen said it’s renters and people with adjustable rate mortgages who have seen the primary, monthly cost of housing go up the most.

Cohen said that overall housing costs in Connecticut are “ relatively affordable” when compared to the most populous places in the country, like New York City or Boston.

“Parts of Florida, parts of California are supremely high,”Cohen said. “While rental costs in Connecticut have been going up, they’re not as high in dollar terms as they are in these other places.”

Housing costs in Connecticut have increased, according to Mark McNulty, spokesperson for the Regional Plan Association, because there is no available housing stock.

“Connecticut has not built enough housing to keep up with demand, particularly not enough rental housing. As a result, costs have gone up,” he said. “At the end of the day, it’s very simple math.”

What can be done

Lanza explained that the Federal Reserve increases interest rates as a way to “cool” down the economy. Inflation, he said, happens when there is “too much money chasing too few goods.”

“How businesses and consumers respond to these higher interest rates is to spend less, businesses will invest less,” he said. “You’ll see fewer businesses looking for loans for capital improvement projects, you’re already seeing higher interest rates on mortgages, on new car loans. You’re trying to cool off consumer demand for big ticket items like homes and cars. So, if people then are spending less, then that will reduce the demand for those big ticket items, and start to bring the increase in the price level down.”

There are statewide actions that can be taken to ease the burden on residents, but Lanza said tax breaks and holidays have the opposite effect in the long term.

“The Fed is trying to tamp down the economy, cool it off, cut back on spending, and if you give tax breaks to consumers, they’re gonna love it,” he said. “This is relief from prices, but then what does it do? It frees up resources for people to go out and continue to spend more and that’s not what you want folks to be doing.”

One solution, according to O’Brien, is for income taxes to be linked to the inflation rate.

If inflation has increased by nearly 9 percent, as the BLS said, and if take-home pay has not increased at all, “your purchasing power is about 8 or 9 percent weaker than it would otherwise be since prices have gone up 8.6 percent,” O’Brien said.

If, however, your take-home pay increased by 9 percent, “that meant their purchasing power just stayed constant.” But because income taxes are not indexed to inflation, that family’s purchasing power actually dropped despite the raise, since costs increased and they are now paying more income tax.

“Even though that family’s purchasing power in the market stayed the same, we’re taxing them as if they’re a better-off family than they actually are,” O’Brien said. “Because our income tax doesn’t adjust for inflation.”

That loss of purchasing power is felt more starkly by people whose incomes did not go up as much.

“Most people aren’t getting raises that are actually keeping up with inflation,” O’Brien said. “Even if they’re getting a raise, it might be 5 percent, and their real purchasing power has declined. So those families are worse off with their standard of living. But even the families that have gotten a raise to keep up with inflation, or exceed inflation, are now being taxed as if their standard of living has actually increased, whereas they’ve just gotten a cost-of-living adjustment.”

On the cost of real estate, Cohen said increasing the supply of available, affordable housing would take some of the burden off.

“One way in general to keep housing costs under control is to increase the supply of housing,” he said.

McNulty said that while property tax relief and assistance for first-time homeowners has taken the edge off to some degree, at least in the short term, “the scale of assistance for renters is not enough, concomitant with the scale of the distress.”

“In order to help ease the cost burden that renters face, the state should take both immediate and long term actions,” he said. “In the near term, the state could reinforce its rent relief programs. The United CT rent relief program was funded with federal dollars, and those funds have been exhausted, but not all renters received relief. I believe several thousand applications were thrown out, either because the landlord or the tenant did not fill out the application correctly.”

Authors: Jordan Fenster, John Moritz •  Source: CT Post • View

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