Grocery prices tend to play a role in how people view inflation because of how frequent these purchases are for households. In the past four years grocery prices have jumped 25% which passes overall inflation of 19%. The increase in food costs began early in the pandemic, but most recent developments keep prices high, such as recent droughts, extreme heat and a flu outbreak that sent chicken eggs soaring. Higher wages at plants, warehouses and grocery stores have added costs too. Along with political issues in different countries that affect food we get imported.

The rate of growth of inflation has fallen to 1.3% from 11.8% from the year prior. While grocery prices are up overall, there are some food items that recently saw a decline in price since last year's prices. The demand for food has remained elevated as Americans lean towards higher quality, organic foods. They are willing to spend more for better quality too. So, although prices have raised overall, grocery billed have almost doubled for a lot of families who have also decided to start eating better.

There is no immediate fix by policymakers since prices remain elevated due to a mixture of labor shortages still from the pandemic, ongoing supply chain disruptions, droughts, avian flu, and other factors beyond administration control. An administration spokesman cited actions it has taken so far to ease fertilizer prices, improve the capacity of meat and poultry industries, and advance an antitrust agenda to increase competition in the agriculture sector.

Connection To Class

Groceries are considered a household expenditure, and it is something that has recently been affected by inflation. Households use their disposable income for groceries, which is the income that remains after taxes are taken out.

The article talks about supply chain disruptions and employment shortages, which, in a part, lowers the output and raises the costs of groceries. The higher cost of food will decrease the amount purchased. Overall, inflation will lower the consumption of goods because households may respond to this by buying less food or limiting themselves from what they used to purchase.

In this module, we learned about the Keynesian Cross Method. The first part of this model is the actual expenditures. This is equal to the sum of consumption, government spending and investments that were actually spent. This is also known as the GDP, as we previously learned. In our model, the groceries would be included in the consumption category.

Planned expenditures is the money that was planned to be spent on consumption, government spending, and investments. It sits at a 45-degree angle on the graph with a slope of $1. This slope is the marginal propensity to consume. It is our assumption that the economy is in equilibrium when actual expenditure equals planned expenditure.

Where these 2 lines meet is the equilibrium income. As you can see on the graph below, when consumption lowers it lowers the actual expenditures line, thus lowering expenditure, output, and the GDP equilibrium (moving from point A to point B). On the consumption function graph, a raise in grocery inflation would make the line of consumption move down due to less purchases of groceries being made.

With this graph, we can assume that the higher the income, the more money spent in groceries (marginal propensity to consume). This can change the slope of the line.