Thanksgiving? In This Economy?
Jayson Lusk’s Thanksgiving tradition, if you could call it that, is to talk with reporters about the prices of Americans’ holiday groceries. The media requests “seemed to start even earlier this year than usual,” Lusk, an agricultural economist at Purdue University, told me recently. “But it’s a more interesting story this year.”
That’s because the ingredients for Thanksgiving dinner are significantly more expensive than they were 12 months ago. In this regard, they’re similar to many other basic things that people buy: The prices of cars, clothing, and other everyday goods have risen substantially over the past year.
To conceptualize how inflation is affecting grocery bills, I put together a shopping list for a hypothetical Thanksgiving dinner for eight people and used data provided to me by IRI, a market-research firm, to see how much it would cost this year, last year, and in 2019. The total for my groceries—the things I’d need to make turkey, gravy, cranberry sauce, stuffing, mashed potatoes, green-bean casserole, sweet-potato casserole, and two pumpkin pies—came out to $53.93, which represents an increase of about 5 percent from 2020. The mashed potatoes and cranberry sauce had the biggest price increases; the cost of each rose roughly 9 percent.
In terms of dollars, these price changes are not enormous; this year’s bill is only $2.41 higher than last year’s. But as a percentage, this increase is abnormally large. In a typical year during the 2010s, Lusk said, food prices increased by about 1 percent. If the cost of my ingredients had increased at that rate from Thanksgiving 2019 to now, it would currently be about 2 percent higher than it was two years ago. Instead, it’s almost 13 percent higher.
(Another bit of context: If the cost of my dinner for eight seems different from what your household is spending on your own holiday meal, that’s probably because IRI’s pricing data are nationwide averages from about 20,000 stores; some people will spend a lot more money on more premium groceries, and perhaps buy more food too. But whatever you’re spending, the percentage increase could be similar.)
A 5 percent increase to a holiday grocery bill is not on its own going to push households into financial ruin. But Thanksgiving is just one day, and paying 5 percent more for every meal at home adds up, especially for people with less money—in 2019, according to the Department of Agriculture, the lowest-income one-fifth of households spent 36 percent of their post-tax income on food, while the highest-income fifth spent only 8 percent of theirs.
Another variable affecting this year’s Thanksgiving shopping is the number of guests. My simulated feast is for eight diners, which IRI’s consumer surveys indicate will be the average size of a gathering this year. Last year’s average, 4.6, was lower because of the pandemic, and this year will likely have larger celebrations because the COVID-19 vaccines have lowered risk for many. Jonna Parker, a principal at IRI, told me that larger guest lists can mean more food bought across the country. “If you know you’re having five extra people over, you might over-purchase to make sure that you don’t run out of food,” she explained. “If it’s just you and your immediate family, you know how much to make.”
Indeed, IRI’s data show that during the first week of November, the number of pounds of my Thanksgiving foods sold nationwide increased by 7 percent compared with last year. But Parker said this also reflects a separate development: Americans have done more of their Thanksgiving shopping earlier. She thinks that after encountering shortages of food and other products throughout the pandemic, people might have secured their ingredients further in advance to make sure that they got what they wanted.
Parker said she’s seen no sign of shortages of Thanksgiving ingredients, but these understandable fears exemplify a broader unease among consumers right now. In fact, the steep increase in the price of groceries looks small compared with what’s happened with other goods. Since the beginning of the pandemic, the average price of gasoline has increased by roughly 38 percent, and the average price of used cars and trucks has increased by roughly 44 percent.
Americans’ average wages have risen since before the pandemic, but they haven’t risen enough to keep up with price increases across the economy. According to one recent analysis, when taking inflation into account, Americans’ average compensation is 0.6 percent lower than it was at the end of 2019.
“Overall, it doesn’t seem like a huge difference, but it adds up over time,” Karen Dynan, an economics professor at Harvard University and a former assistant Treasury secretary, told me. “A lot of families are living [on] tight margins, so some are going to feel a squeeze.”
Moreover, a nationwide average masks the significant variation in how Americans’ pay and expenses have changed over the past two years. Some workers, particularly those who have recently switched jobs, have seen their compensation tick up, while many others haven’t. And with the prices of vehicles and gas soaring, someone who recently had to buy a car to get to work will probably feel inflation more than a city dweller who takes public transportation.
According to Lusk, the price of food is being pulled upward by a mix of forces, including heightened demand for groceries as people have been making more food at home, higher prices for fertilizer and crops that feed livestock, and bad weather that has hurt yields in some parts of the country.
In the broadest sense, Dynan said, prices are rising economy-wide because of an imbalance between how much people want to buy and how much businesses are able to produce. The fact that demand, the first element in that calculus, is strong relatively soon after last year’s recession is encouraging. But supply, the second element, is still being hampered by shipping delays, shortages of semiconductors and other materials, and other complications resulting from the pandemic.
“Most economists would agree that those sorts of problems are going to work themselves out,” Dynan said, but “there is disagreement about how long it’s going to take.” Inflation could continue at a similar pace for the next few months, but beyond that is hard to predict with certainty. Still, Dynan’s guess is that the increase in the price of Thanksgiving dinner will be smaller in 2022 than it was in 2021. If all goes well, Lusk will have fewer reporters to talk with this time next year.