Inflation Chronicles: meatballs and spec houses

“Annual American inflation hit 7.5%: A near 40-year high” (CNN, today):

A key measure of inflation climbed to a near-40-year high last month. Economists are hopeful that America will reach the peak of the pandemic-era price increases in the early months of 2021. Here’s to hoping.

The consumer price index rose 7.5% in the 12 months ending January, not adjusted for seasonal swings, the Bureau of Labor Statistics said Thursday. It was the steepest annual price increase since February 1982 and worse than economists had forecast.

(Note that these are “pandemic-era” increases, not “Biden-era”.)

Which economists are “hopeful”? The article itself cites only an economist who suggests that the price increases will be persistent.

“There will be plenty of persistence from soaring house prices pushing shelter costs this year,” said Sal Guatieri, senior economist at BMO, in a note to clients.

How does it feel on the ground? (“on the swamp”?) Across from our beloved Abacoa neighborhood is Alton, a newer development. The Italian restaurant inside Alton is Lynora’s and, through 2021, they were famous for $2 meatballs on Mondays (example). For 2022, the meatballs are $3 each (an annual inflation rate of 50%).

What about the new houses in Alton? You used to buy one pre-construction or at least pre-completion, thus enabling the selection of colors, styles, finishes, and options. The result would be paying a June 2021 price and moving into a December 2021 house. Inflation is now so high that this approach to business has become untenable. Starting in 2022, the developer will no longer sell any house until it is complete and therefore it is no longer possible for a buyer to customize anything.

What does a house with in Alton look like? Here’s one for $3 million (5,000 square feet, helpful alligator ramp from the “lake”):

Or you could live in a townhouse for $950,000 (2,252 sq. ft.):

Despite the stratospheric-by-2020-standards prices, this neighborhood is actually inferior to Abacoa in many ways. People don’t like the public schools as much (though both neighborhoods are served by the same Palm Beach County system). There is much less green space in Alton. There are fewer trees and they’re scrawny so there is precious little shade. There is so little space between houses that your single family home’s living room probably ends in the neighbor’s bathroom. Why are people willing to pay so much? There is a significant premium for new construction in Florida, where people believe sic transit gloria mundi when it comes to developer-built housing exposed to sun and humidity. (As Dan Quayle is famous for pointing out, Latin is more commonly spoken here due to the proximity to Latin America.)

10 thoughts on “Inflation Chronicles: meatballs and spec houses

  1. It’s worth pointing out that the US government has changed the way the CPI twice in the last 40 years to make inflation seem like it was lower (and therefore less embarrassing to the US government) than it actually way. If you calculate the CPI the way the government did in 1982, the current inflation rate is actually 15%.

    • > If you calculate the CPI the way the government did in 1982, the current inflation rate is actually 15%.

      That’s reflective of what I have seen for in-trade wholesale printing and supplies. At the beginning of the year I have my usual price adjustment conversation with one of my brokers and he agreed and I raised my prices by 15% exactly. He said: “That’s fair.” I didn’t enjoy participating in this stuff but otherwise I cannot make any money.

  2. Seems clear that out of control government spending, what the Dems euphemistically term “supply chain problems,” caused the current inflation and were it not for Manchin and Sinema trillions more would have been pumped into the economy. Remarkably 48 of the 50 Dem senators were in favor of doing just that. The real inflationary effects of the excessive spending of the Johnson era were not felt till about ten years after the blow out great society/Vietnam war spending. Will be interesting to see how it plays out this time. Serious economists, if there is such a thing, seem to think that short term rates will have to hit about 4% to nip the inflation. That is more than quadruple from where we are now.

    • 4% is nothing in comparison to the 20% under the Volcker regime in the late 1980s. Not sure there’s anyone who would dare to repeat that.

  3. Will there be a blog post reviewing the glorious decade-long reign of MIT President Rafael Reif, now that it has come to an end?

  4. It looks like quite a long ride to the ocean from that $3 million Alton house in the picture.

    • If Bernoulli principle remains valid for Atlantic Ocean and its shores then it is not safer from global warming – type flooding if it is at the same height above the ocean level as beach houses. But it is safer from tsunami and hurricane – induced waves.

  5. Trump was elected to Make America Great Again.

    Biden was elected* to be Not Trump.

    (* by a cabal in a “fortified election” if you believe Time Magazine)

    #BidenInflation is just proof that Zhou & Kama Sutra are actually fulfilling their campaign promise: Make America Not Great Again.

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