Inflation Cannot Hide on Amazon Prime

by | Mar 7, 2023 | Blog Articles, Covid-19, Finance, Inflation, USA

I have often heard it said that the first step in recovery from addiction is to admit that one has a problem. Well, I’m not afraid to admit that over the years I’ve become completely dependent on Amazon Prime for the vast majority of my grocery and household goods shopping. If it’s not something fresh or somehow unique, when I know I’m running out of this or that commodity item, I go to the mobile app, and in less than a minute I’ve ensured a replacement will arrive at my doorstep within a day or two.

I’m unapologetic about my addiction to Prime, and, while I admit I have a problem, I have no real desire to change my behavior. The convenience can’t be beat, and the prices are usually amongst the lowest that can be found. But I’ve recently discovered an additional benefit of the platform, which is the ability to go back and look at my transaction history over the years, including what prices I paid years ago for the same things I’m ordering now. For someone writing and thinking a lot about inflation, that is a helpful feature.

I decided to do an admittedly unscientific and anecdotal—yet informative and illustrative—analysis of the cost of a basket of items that I repeatedly purchased on the platform, to understand how prices have moved over the past three years, i.e., since 2020 and the lockdowns that did more to benefit Amazon’s business than perhaps anything before it.

What I’ve discovered about prices is shocking. While annual CPI inflation has printed 1.4 percent, 7.0 percent and 6.5 percent for the past three years ending December, implying a 15.5 percent change in the overall price level, Food at Home has run substantially hotter during this period, at 3.9 percent, 6.5 percent and 11.8 percent, respectively. The effects of compounding mean that CPI indexed Food at Home prices are 23.7 percent higher today than in January 2020. Since food typically accounts for some 15 percent of after-tax spending for the average American household, these increases matter a lot.

While not an apples to apples comparison, what I see in my own purchasing data for food and household items indicates that these figures still underestimate the impact on my household budget. For those readers who are now curious and also Prime customers, it may be worth running the same analysis for your own household by looking up your order history from 2020 and comparing prices to today’s.

For my household, the median price of a sample basket of food and household items that I regularly purchase is up by 33 percent in three years. The average price is up by 48 percent as some items, such as shelf-stable milk and bottled water, have seen large increases approaching 70 percent over this period. For food and beverage items generally, the average price is up 43 percent. For household items the average price increase is 52 percent. I couldn’t believe my eyes, but there it was.

Now again, this is only one household’s purchasing patterns, and thus anecdotal. It mustn’t be taken as representative of price levels as a whole. But it does illustrate an issue, which is that the price indexes we’re seeing out of the Bureau of Labor Statistics seem to underrepresent the increase in prices that many Americans are experiencing.  And it doesn’t account for trading down, i.e., buying less or of lesser quality, than many Americans are practicing out of necessity.

The other notable pattern I observed is that packages are getting smaller. A well-known brand of laundry detergent has 8 percent less by volume, but somehow still is promoted as providing the same number of loads as before. Tuna fish is now in five ounce cans rather than six ounce cans. Whether canned foods, bags of chips, rolls of toilet paper or anything else, consumer packaged goods companies are resorting to old tricks of package shrinkage to avoid having to display a higher headline price.

Food at Home’s annual inflation rate of 11.8 percent in 2022 was a very high number. The latest CPI data show that the index did move down to 11.3 percent in January. This was a step in the right direction, however, prices are still growing too fast. Consumers are suffering as a result.

Some Food at Home items have made headlines for tracking well above the indexed CPI figures. Eggs, for example, are up a startling 70 percent for the 12 months ending January 2023. Unlike the price level generally, we are told that rising egg prices are the result of specific issues including increased consumer demand for eggs (i.e., as a protein substitute for meats, implying consumers are trading down) and the avian flu epidemic which has substantially reduced production. Fair enough. But many categories of basic consumer staples, such as butter (26.3 percent), flour (20.4 percent), soups (16.5 percent), cereal and cereal products (15.9 percent) rice (14.0 percent), dairy (14.0 percent), and fresh whole chicken (13.8 percent), to name but a few, are all tracking well above the index numbers. These items are offset in the index by things like bacon (—3.9 percent) and peanut butter (3.6 percent), which when combined make a tasty and deflationary snack, but not a stable price outlook overall.

In addition to these not great January CPI numbers, recently released data from the Bureau of Economic Analysis shows that the Personal Consumption Expenditure Index, a favored indicator for policymakers, rose to 5.4 percent in January, up from December’s 5.3 percent.

Both January’s CPI and PCE figures are sending warning signs that there may yet be more inflationary pain to come. For Food at Home, this implies it still makes sense to buy extra groceries and freeze or store up where you can, to avoid even higher prices later in the year.

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