I don’t know about you, but it seems the costs for everything are getting crazy.  My wife went to the grocery store and items that were $9 last week are $14 this week.  You can’t tell me grocery store or supplier costs have jumped 56% in one week?!?  

I travel frequently with United as my primary airline and am a regular at several food vendors and restaurants in Denver Airport, United’s West Coast hub.  Last week when I was there I noticed prices were easily 20% higher than they were just three weeks earlier.  I am convinced that airport vendors have decided to see how far they can jump prices to a captured audience before people stop buying.   Starbucks tried that same strategy and it backfired on them as people around the world stopped going to Starbucks. 

Starbucks released on October 22, 2024, their preliminary financial report stating global sales have declined 7% in the past quarter with GAAP (generally accepted accounting principles) earnings plummeting 25% during the past year.  In the report, they stated that,

• “For the fourth quarter of fiscal year 2024, global comparable store sales declined 7%, and consolidated net revenues declined 3% to $9.1 billion, or a 3% decline on a constant currency basis. GAAP earnings per share is $0.80, down 25% over the prior year. Non-GAAP earnings per share is also $0.80, declining 24% on a constant currency basis.”

Starbucks stock plummeted earlier this year and although it has recovered from the selloff, its year-to-date return is only 1.1%.

Unfortunately, it’s not just at airports or at Starbucks that prices are skyrocketing.  The Consumer Price Index (CPI) has increased at an annual compounded rate of 5.4% since January 2020.   The annual increases in prices these past four years have been increasing nearly 34% faster than the average of the past 54 years going back to 1950.  The CPI chart below illustrates the consistent annual increases of the CPI until 2020 when the annual increases changed dramatically.

One factor that is driving prices up is labor costs.  Friday the US Bureau of Labor Statistics released their Employment Cost Index that tracks monthly changes in labor costs.  As illustrated below, the Employment Cost Index of monthly changes soared during the 1980s with labor cost increases of over 6% per year.  During the 1990s, labor cost increases slowed to 3.5% to 4.5% each year until the 2008 Great Recession when labor costs plummeted.  After the dust settled in 2009 with the residential real estate crash, changes in labor costs were minimally increasing 1.5% to 3% per year with some quarters increasing barely 0.5%.  The quarterly labor increases remained well below the levels of the previous three decades up to 2020. 

However, the dramatic change in business structure due to government restrictions prompted massive layoffs in 2020 followed by massive re-hiring campaigns. Government subsidies to the unemployed diminished the desire for many to return to work.  The significant shortage of workers caused employers to increase wages, and many offered bonuses to prospective applicants. The gap between unfilled jobs to applicants widens significantly in 2022 resulting in over 10 million available jobs more than eligible workers.   

Although the imbalance of applicants and unfilled jobs is correcting, wages are still increasing faster than inflation and faster than average annual increases in previous decades.

What Does This Mean to Me?

The good news for many workers is that their wages are increasing faster than CPI.  The result is the potential for households to increase their net savings after expenses with each pay raise.  If consumers are smart, they will be capitalizing on their raises by adding to their retirement accounts and paying down debts. 

The stock market this year has also provided excellent returns and opportunities for consumers to increase their savings, and retirement accounts, and pay down debts.  The good times don’t last forever, and it's during these growth years that people need to capitalize on all the opportunities available to leverage up their finances and prepare for the next recession.

We specialize in assisting our clients to achieve and maintain financial independence.  We welcome the opportunity to assist you and your family in achieving your goals.  Give us a call to schedule a time so we can discuss strategies that may help you get from here to there quickly.