Inflation’s hit to a Southern Californian’s checkbook hasn’t been this hard in 31 years — a time when “Home Alone” was a blockbuster hit and George H. W. Bush was president.
Consumer prices in Los Angeles and Orange counties rose at a 6.6% annual rate in December, according to the Bureau of Labor Statistics. Everything from gasoline and household fuels to used cars and appliances and even recreation got really expensive. Inflation has risen a long way from 1.5% in December 2020.
These cost jumps are by no means just a local phenomenon. Nationwide inflation hit 7% in December — the highest rate since 1981. In Phoenix, inflation was 9.7%, and in Seattle 7.6%. The Bay Area’s cost of living was relatively mild, up only 4.2%. Inland Empire inflation, measured back in November, was 7.9%.
A curious mix of pandemic forces is powering this inflationary rush. The economy is struggling to deal with persistent coronavirus strains, which has led to shortages of workers and raw materials. Shoppers are weathering thinly stocked shelves and delivery delays due to supply chain challenges.
On the flip side, demand for goods and services has soared because consumers are flush with cash. Hiring sprees are pushing up wages. Government stimulus programs sent taxpayer checks and cut interest rates, in turn, boosting the values of stocks and real estate.
My trusty spreadsheet says we are living amid a stunning reversal in L.A.-O.C.’s overall cost of living.
December’s rate spike came in a year in which inflation averaged 3.8%. That was more than double 2020’s 1.6% rate in a pandemic-iced economy. During the economically strong 2016-2019 period, the rate averaged 2.9%. In the Great Recession recovery of 2009-15, it was 1.2%. Note that in the infamous bubble-era — 2000 to 2008 — inflation averaged 3.4% in L.A.-O.C. and costs grew 2.6% in the slower-growth 1990s.
Inflation vs. jobs
Rising inflation is typically the byproduct of a hot economy experiencing heavy hiring.
A sharply rising cost of living strangled the economy in the late 1970s and early 1980s, but inflation also neared today’s heights in the booms of the late 1980s and the 2000s. Let’s look at the CPI and its relationship to the job market.
California’s unemployment rate tends to drop before inflation spikes. Historically, when the L.A.-O.C. inflation jumped by 2 percentage points or more in a year — something that occurred 19% of the time since 1976 — there was a 73% chance the state’s jobless rate declined during the previous 12 months.
In the past year, statewide joblessness fell to 6.9% from 8.7% while in Southern California, unemployment dipped to 7.1% from 11.9%.
With fewer folks seeking work, local bosses competed for talent by offering pay hikes.
Southern California wages and salaries rose at a 6.5% annual rate in the 12 months ended in September, up from 3.1% a year earlier, according to the Employment Cost Index. That’s the highest level in this index’s 15-year history and it was No. 1 among 15 big job markets studied.
That extra cash can somewhat offset the pain of inflation to the consumer, but those higher wages are also a business cost frequently passed along to shoppers.
Where it hurts
How inflation hits a household depends on how a family spends. Take a look at soaring prices in December …
Fuel: Gasoline in L.A.-O.C. cost 47% more in the last 12 months, by CPI math. More driving, more demand as the key ingredient — crude oil — stays pricy.
Household energy: The cost of electricity was 16.2% more. Natural gas? 18.3% more. Higher fuel costs are a big factor.
Vehicles: New? 9.2% pricier. Used? 35.7% pricier. Computer chip shortage limits auto production.
Big-ticket items: The cost of “durable goods” (such as appliances and furniture) was 10.2% higher. Manufacturers struggle to find supplies.
Food: Groceries rose 8.1% as growers, packers, distributors pass along higher wages costs. Eating out got 6% pricier. Restaurant owners juggle rising labor and ingredient costs.
Recreation: Having fun is 7.2% pricier. Again, labor costs hurt.
Apparel: Clothing was 6.2% more expensive. Less product available due to overseas factories slowed by pandemic.
Housing: Keeping the roof over your head cost 4.6% more. Landlords hike rents.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
