At the moment, wages are rising faster than inflation, which means that “real,” or inflation-adjusted wages, are rising.
“There is almost no evidence” that wage increases lead to inflation, Rosenberg wrote. His firm conducted a statistical test (called Granger causality) that found inflation causes wage increases, but not the other way around. He predicted that rather than passing along higher wage costs to customers, companies would be forced to swallow them and accept lower profits.
In other words, the Science of Rosenberg and Granger proves that cars and bicycles sell for the same amount because higher costs for producers don’t shift the supply curve and change the equilibrium price.
The School District of Palm Beach County reached an agreement with the Palm Beach County Classroom Teachers Association (CTA) that will give an average 7% pay increase and one-time 3% bonus to instructional employees. The agreement was approved by the School Board during its Special Meeting on October 4, 2023. The significant raise demonstrates the District’s commitment to fairly compensating teachers for their hard work and dedication to students.
There is no possibility of the price of property tax going up to pay for this, according to the New York Times.
September 2023: Hollywood agrees on a new, higher-paying, contract with writers; “an 18 percent pay bump and a 26 percent increase in the base rate with which residual payments are calculated” (Washington Post)
October 2023: “On the most popular days, though, Disneyland is raising prices by more than 8% to $194. For a five-day ticket, Disneyland raised prices by nearly 16% to $480. The park also raised the price of various add-ons. Disneyland’s Genie+ product, which gives customers access to shorter lines, will now cost $30 a person, up by $5. For five-day tickets, the price for Park Hopper, which lets customers go between Disneyland and Disney California Adventure Park on the same day, also rose by 25% to $75. Disneyland also raised the price for parking and other products, including its Magic Key annual passes.” (Wall Street Journal)
Readers: What else have you seen that could be considered evidence for my discredited theory that a wage-price spiral could occur?
The good news: if your own income isn’t keeping up with inflation, you can save money by shopping at Costco. On a September 25, 2023 visit, they were offering a bottle of Champagne for $4,500, including a free glass.
State Farm says “A rule of thumb is to set aside 1%-4% of your home’s value for a home maintenance fund”. Aside from the fact that this is a huge range, it seems questionable. If a house is brand new, for example, it will be worth more but shouldn’t cost as much to maintain. Does “home’s value” include the land? If we want to use a percentage of “value” should we start with what it would cost to rebuild the house at today’s prices?
Also, I’m not sure that these formulae are valid for keeping a house in like-new condition. People in our part of Florida will either bulldoze a house after 20-30 years or do a major renovation ($100-200/ft), often back to the studs.
State Farm considers costs for the roof, HVAC, water heater, garage door opener, windows, and appliances. But this list isn’t complete and if you had all-new items in all of those categories your house could still be extremely shabby.
Our sojourn thus far in a 20-year-old house has taught me a lot about life limits. I recently learned about the thermal expansion tank attached to the water heater. This prevents excessive pressure from developing in a house’s water lines if the system is sealed off from the municipal water supply via a backflow preventer (see Supreme Court saddens the guys working at our house today). As soon as our backflow preventer was rebuilt, we began to notice that sometimes water pressure was initially high when opening a faucet. Our next-door neighbor is a senior engineer for a Detroit automaker and my go-to source for everything related to the house. He said that he’d had the same problem when his thermal expansion tank had failed internally. We looked at our water heater (installed 2020) and there was no tank at all! (Due to the failed backflow preventer, any excess pressure was previously absorbed by the city water supply.) The plumber who put a tank in said they cost $300 and last 2-5 years (they have a one-year warranty). So that’s an extra $75/year in maintenance reserve, perhaps.
If we consider furniture to be part of the house, and we want a house to look good, we need to budget for replacement of all furniture every 10 years (usually not cost-effective to reupholster). Online estimates of furniture cost are 10-50 percent of the house value. If we take the bottom end of this range for cheap-ish furniture and assume that the furniture costs 10 percent of the house value, that’s 1 percent of the house value every year as a furniture renovation budget.
Backyard pools here in Florida have a life expectancy of about 20 years (leaks can develop; tiles start to come apart). They cost about $25,000 to rehab every 20 years and the pump and heater can die sooner, so that’s probably $1,500 per year amortized.
You’ll want to paint inside and out every 5-10 years if you want the place to look sharp. That won’t be cheap!
People in nicer houses seem to do complete kitchen and bathroom renovations every 15-20 years. Those are $100,000+, so at least $7,000 per year if you want to avoid a period of shabbiness and people walking in saying “this kitchen could use a renovation”. (Of course, hardly any cooking is done in these dream kitchens, but somehow the cabinets and appliances still manage to fall apart over time!)
In order to remain competitive, hotel owners are required to do complete renovations periodically. Every room is rebuilt, refurnished, etc. Every wall is painted and every floor gets a new carpet, tile, or other flooring. If you want to live in a house that isn’t shabby, you need to do the same thing and I suspect that will cost more than 4% of the house value per year. But how much more?
Or I wonder if we could take the cost of a complete rebuild of the house and multiply that by 4 percent. Building a mediocre house in South Florida will cost about $1 million (about $350/foot for 2,500′ plus another $100,000 for the pool). The maintenance budget for a 2,500′ house is thus $40,000 per year.
Here’s what I came up with…
State Farm items
swimming pool rehab
Note that the $150/ft renovation is intended to include the kitchen, bathrooms, and all appliances. It would also include flooring and paint. The total comes out pretty close to $40,000/year and there is nothing in the budget for mid-cycle painting, unexpected repairs, or unknown unknowns.
In other words, if someone got a 2 percent mortgage a couple of years ago, his/her/zir/their annual maintenance budget could well be larger than the mortgage, an unexpected result for many.
The typical homeowner, of course, won’t do the renovation every 20 years, so he/she/ze/they will spend less and also live in an increasingly decrepit house (or move!).
For calculating inflation, the BLS uses the fictitious “owners’ equivalent rent” (OEI). Home maintenance costs rise with the price of labor, which in turns rises with the cost of health insurance and, thus, at a higher rate than overall CPI. I wonder if inflation is understated partly because it assumes that Americans will live in ever-shabbier houses. The shabbiness wouldn’t be compensated for in OEI because owners aren’t likely to notice how crummy their house has become compared to a new house (boiling frog syndrome, another false premise of Science).
In other words, our houses cost us way more than we think, either explicitly in money if we do keep them up or implicitly in shabbiness if we don’t, and that might lead to inflation being understated (since we would have to spend a lot more to maintain our lifestyle).
Prices are rising more slowly, but consumers fixate on how much lower they were before the pandemic, a problem for Biden.
Inflation has fallen sharply in the past year. The economy remains strong. Yet Americans remain deeply unhappy about the economy, often citing inflation. It continues to weigh on President Biden’s approval and re-election hopes.
Peasants aren’t sufficiently grateful, in other words, for all of the good things that the Party has done for them. They don’t credit Joe Biden for increasing their chocolate ration to 20 grams, for example.
I wonder if there will be spontaneous pro-Biden rallies to show gratitude for the lower airfares and car prices after the latest union contracts work their way through the system. CNBC:
RDU is building a new 10,600′ runway. It will cost “more than $500 million” (source) and the project will take five years (completion scheduled for 2028). The runway being replaced was built in the 1980s. I can’t find anything about how much it cost to build.
Back in 2019, this public works project was supposed to cost $350 million (source). So there has been inflation of 43 percent over a four-year period (official CPI from the BLS is up 21 percent).
Cost to rebuild three conference rooms at the White House: $50 million.
We are informed that inflation is at 3 percent. The various county and local governments here in Palm Beach County/Jupiter somehow did not get the memo. A “Notice of Proposed Property Taxes” that I recently received shows that the taxing authorities are increasing their budgets by about 9.5% on a per-resident basis. The notice shows the millage rates with and without the proposed budget increases.
(I don’t think that the budget increases can be explained by the lockdown-driven exodus from the Northeast. The county’s population grew by only 13,000 in 2022, less than 1 percent (Palm Beach Post).)
Note that the first $50,000 of value is exempt for full-time residents under the “homestead exemption” and the assessed value for a primary residence cannot go up by more than 3 percent annually (but there is no limit to increases for the millage rates?).
Readers: What’s happening to your property tax bills in our 3% economy?
One of our neighbors is an accomplished oil painter. Here’s a photo that I took of what I think is one of the nicer-looking houses in the neighborhood for her to use as the basis of a painting:
What I think is the same house, but in white:
(The truly custom houses in this area are reserved for the truly rich!)
While shopping for furniture that would help our senior golden retriever get up on the bed, I found this upsetting example of inflation:
We’ve been in our house for a little over a year and it is time to order some additional furniture. I spent a little time on the web sites from which I ordered a 1-1.5 years ago and, for those products that are still offered, compared prices.
Americans’ perception of inflation certainly seem to be higher than the official CPI numbers. Workers demand 30 percent raises (and get them, in California) when Pravda says that inflation has been less than 10 percent and is now down around 3 percent. Previously, I’ve wondered if part of that is due to delivery times stretching out into the next Ice Age: Is inflation already at 15-30 percent if we hold delivery time constant? The quoted price doesn’t go up more than 20 percent, but you might not get your refrigerator for a year or more (a Sub-Zero fridge that was formerly available in 7-10 days now takes 12-15 months). A Cirrus SR20 is priced at more than double what we paid for our 2005 SR20 from the factory, but delivery time is 2 years instead of 3 months. What’s the actual price of something that doesn’t exist?
After talking to HVAC contractors, a regular event here in Florida, I’m wondering if this is also partly due to repair parts shortages. A/C systems that were designed to last 12-14 years are being scrapped at 5 or 6 because essential parts (not as “essential” as marijuana in Maskachusetts or California, but required for cooling) are theoretically available, sometimes for free under warranty, but practically unavailable (lead times of 8-12 weeks, which is no solution at all in a South Florida house).
For the HVAC inflation that does make it into CPI, here’s a tracker page from a contractor (the Trane section because that’s what came with our house). The prices went up about 5% in May after going up 10% in January after going up about 4% in September 2022 after going up 9-18% in May 2022….
“Price hikes loom for consumers with the loss of Yellow trucking” (NBC, two days ago): After the shipping giant filed for bankruptcy, its competitors have already indicated they will not match its low-cost pricing. The U.S. just lost as much as 15% of its small-batch trucking capacity — and consumers are likely to feel the effects in higher prices as the holiday season rolls around.