Payroll Tax Crushes Consumers
I know we're supposed to be in a low-growth economy, but prices sure aren't.
First off, rising food prices are hard to miss at the grocery store.
According to the government, ground beef is up 13.5% year over year, chicken is up more than 12%, steak up 9% and coffee is up 7.5%.
That's two of my three food groups. The third group, peanut butter, is up more than 11%.
I joke, but it’s very serious.
Consumer budgets are stretched to the limits, wages are stagnant or down for those with jobs, and for those on fixed incomes, there isn't a lot of room for T-bones when the price is skyrocketing.
We asked viewers on Twitter and Facebook if you are facing higher prices: the answer a resounding yes!
Serena says this: "We are having a hard time making it. I stretch every meal, not a scrap of food is wasted and I plan meals two weeks out."
Ginee has solutions too: "Eating a lot more fresh veggies from our garden... green bananas, yucca, all greens such as the broccoli leaves.”
And, it's not just food. Gas prices are up almost 50 cents in the last month alone- a strange and quick jump that is stumping economists.
The average for unleaded gas isn't the highest we've ever seen, but it's the highest we've ever had for late February. Insider says seasonal factors are at work, but that's cold comfort for consumers.
Three states, and the District of Columbia, have gas prices above $4 a gallon.
News of inflation in gas and food prices flies under the radar because the government doesn't count it in its consumer price index- the main measure of consumer level inflation.
They say prices of gas and food are too volatile to put into the index, but isn't that the point to measure price changes at every level?
Even so, the rise in consumer prices is coming at a bad time. After the first of the year, every working American got a tax hike in the form of the payroll tax, which was restored to pre-recession levels.
This was a pay cut that most of us just weren't anticipating. It is knocking two percentage points off take-home pay,
According to the Wall Street Journal, it’s taking a total of $110 billion out of consumers’ hands, which could presumably have been spent in the economy.
For a household with an income of $65,000, it's a $1,300 haircut. Ouch!
This week, Wal-Mart announced the tax was hurting their sales.
Wal-Mart now joins others, including Burger King and Kraft Foods, in lowering forecasts for sales and adjusting sales and marketing strategies.
They know the higher prices will cost sales, but the question is how much.
Wal-Mart will stock stores with cheaper goods and smaller packages of diapers, while Burger King is cutting the price of its Whopper Jr. to $1.29 from $2.
Look, prices just keep going up and Americans are adjusting their spending and their expectations.
One potential silver lining: the Agriculture Department says food inflation may ease later this year as the effects of last year's drought begins to wear off. Maybe this time the federal government will get its inflation right, but they don't actually have a good record on that score.
By the way, I had to share this from Robert: "Higher food prices equates to more beans and rice at our house, but now our budget for air fresheners has skyrocketed!!!"