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COVID-19 Is Changing The Way We Spend Money, Affecting Inflation


A few days ago, we heard an assessment of the economy. Fed Chairman Jerome Powell said Congress needs to act as the recovery gets harder.


JEROME POWELL: Those sorts of things are for Congress to decide. But I do think there's agreement that something needs to get done. And my guess is that in time, more will be done. And, certainly, I think, more will be needed.

INSKEEP: More will be needed. But Congress has not acted for now. Senate Democrats rejected a Republican version of the latest relief bill. Republicans have rejected the Democratic version. So for the moment, you're on your own. NPR chief economics correspondent Scott Horsley has been asking how the pandemic is stressing the finances of American families. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: What makes the fed chairman and, frankly, a lot of lawmakers think the economy could use more help?

HORSLEY: The economy has bounced partway back from the recession. But there's still a long way to go. And the steepest part of the hill might be ahead of us. We have recovered, so far, less than half the jobs that were lost this spring. Job gains have been slowing. And we continue to see large numbers of people filing claims for unemployment week after week. It's also been six weeks since those unemployment benefits were cut by $600 a week.

INSKEEP: So you've been asking how all this is affecting the way people spend their money. What are you finding?

HORSLEY: Credit and debit card records show spending growth has kind of stalled since the latter part of June. It is well below pre-pandemic levels in most categories. One exception, though, is groceries. Spending on groceries is up and so are prices. That's put the squeeze on some families. I talked this week with Gwen Mickens (ph) in Tampa. She complained that a recent trip to the supermarket set her back more than $250.

GWEN MICKENS: Short ribs are, like, twice as much as they used to be. And, of course, the bacon is more expensive as well and dairy products. And you kind of close your eyes and just pick it up and throw it in the grocery cart.

HORSLEY: Mickens was shopping for herself, her husband and their grown son. She really worries about how bigger families might be coping.

MICKENS: I'm wondering, how do they make it? It has to be extremely hard.

HORSLEY: Michelle Ellerhoff (ph) has two kids at home, ages 10 and 12. Her grocery bills have also gone up.

MICHELLE ELLERHOFF: They eat so much (laughter). So just to try to keep up with them and not having school lunches did increase my budget.

HORSLEY: And to make matters worse, Ellerhoff lost a freezer full of groceries last month when that big windstorm ripped through eastern Iowa, where she lives, and knocked out power for a week. She's still trying to restock.

ELLERHOFF: I'm going slowly with that (laughter). It's just too overwhelming to do it all at once.

HORSLEY: The pandemic has also made it harder to go bargain hunting in the grocery aisle. Nancy Gaston (ph) of Vancouver, Wash., used to study supermarket fliers and online coupons. But she's not doing that these days.

NANCY GASTON: I used to go to two and sometimes three different stores in the course of a week. And I just want to limit social contacts. And so I go to one store a week, usually on Sunday morning because nobody else is there.

HORSLEY: As a result, Gaston is paying more for groceries. But she is saving money in other areas.

GASTON: Haircuts, manicures and gasoline. I went 2 1/2 months between fill-ups with the gas tank on my car because we're simply not going anywhere.

HORSLEY: Lots of people are making similar adjustments. But economists say that's not being picked up by the government's official yardstick of inflation, the consumer price index. That's important because CPI is used to calculate cost of living increases for all kinds of things, including Social Security. It also helps to guide policymakers as they try to figure out what kind of medicine an ailing economy needs.

INSKEEP: Scott, why isn't the consumer price index capturing those rising prices?

HORSLEY: The government tries to measure inflation by tracking the prices on a big basket of goods and services. But in real life, consumers' baskets have changed during the pandemic. We're spending more on things like groceries, where prices have gone up, and less on things like air travel and concert tickets, where the prices have come down. Harvard economist Alberto Cavallo has crafted a special COVID CPI that tries to account for those changes and to measure the inflation that consumers are actually feeling in their pocketbooks.

ALBERTO CAVALLO: When you take into account these things in consumption patterns, it turns out the inflation levels are significantly higher, I would say about 1% percent more on an annual basis.

HORSLEY: The official CPI for August, which came out this morning, shows fairly tepid inflation overall - prices up just 1.3% over the last year. But grocery prices are up 4.6%. And unfortunately, that falls hardest on those who can least afford it.

INSKEEP: NPR chief economics correspondent Scott Horsley. Thanks.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.