The beef with affordability
Posted by: Paul Donovan
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- An affordability crisis is driven by three key factors: perceptions of consumer price inflation (not reality, as opinions are skewed by high-frequency purchases); whether income growth exceeds that perceived inflation; and aspiration—in today’s social media-dominated world, people will assume an affordability crisis if they cannot buy what they think they should be able to afford (and what TikTok tells them to buy).
- Social media may also exaggerate perceptions of inflation. If everyone on your For You page is complaining about beef prices, those prices are likely to play a larger role in shaping your perception of inflation.
- Elevated high-frequency purchase prices relative to income are making the US affordability crisis more vivid than in some other countries. Comparing prices with average hourly earnings, US consumers have to work far longer to buy a pound of ground beef than at any time in the recent past. Only the recession-like circumstances of the global financial crisis compare. Diesel and gasoline price ratios are the worst of the post-pandemic period. Coffee drinkers must toil for 15 minutes to afford a pound of coffee—one of the highest work-time-to-caffeine ratios of modern times.
- While economics focuses on macro trends and the implications for overall spending, the affordability crisis retains a political impact.
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