Over the River and Through the Woods

Question: With inflation, how much more will Thanksgiving dinner cost this year?

Answer: My husband Pete did some research for us and came up with an all-inclusive price of roughly $8-$10 per person, the most expensive on record. He referenced prices from local grocery stores for the basic fixings including a turkey, stuffing, vegetables, rolls, butter, gravy, pies, and ice cream. In 2020 a comparable Thanksgiving Dinner was at an all-time low cost of $4.60, or just under $5 per person.

According to The U.S. Department of Agriculture, the cost of preparing food at home is up 4.5% compared to the same time last year. Inflation figures during October were higher than expected with the Consumer Price Index up 6.2% year-over-year (YOY), the highest increase since the first Gulf War in 1991. As a reference point, last year, the YOY pace was 1.2%.

The U.S. Bureau of Labor Statistics reports food costs for various categories. Food costs overall are up 4.6% with largest gains on meat, poultry, fish, and eggs (see table). The Department of Agriculture states that turkeys under 16 pounds will cost 25 cents more per pound and   those larger than 24 pounds will be 21 cents per pound more costly. Even the cost of aluminum for the cans of cranberries is up and translates to higher prices and shortages in some areas. Lastly, gas prices are up nearly fifty percent since last year making the trip over the river and through the woods to Grandmother’s house more expensive too.

Costco sold out of its complete Thanksgiving meal kit that included turkey, potatoes, vegetables, biscuits, pie, and ice cream that cost $99.99 and serves eight. Cracker Barrel has a heat-n-serve meal to feed eight to 10 for $169 that includes all the traditional items. 

Although moderate income gains are reported, half of all households anticipate lower real incomes next year due to higher costs for goods and services. This shows in the University of Michigan Consumer Sentiment Index (UMCSI) which fell to 66.80, the lowest number in a decade. 

Prices are rising for several reasons, including the speed of the economic recovery, pent up demand, generous levels of cash, and supply chain issues that are expected to continue into 2022. The expectations are for the pace of prices increases to slow, but most prices will not fall. 

There’s a shift in spending from goods (furniture, cars, etc.) to services. This will take pressure away from supply chains moving the emphasis to labor. Price sensitivity is beginning to take place in certain areas causing consumers to change behaviors with more cost-conscious mentality and shifts towards discount retailers in response to higher prices. 

A study from the UMCSI found that in response to the record rise in home and car prices only ~30% of people think now is a “good time” to purchase a home or car. This percentage is well below the pre-pandemic level of 65-70%. On a positive note, this type of cautiousness and frugality is not known as a precursor to runaway inflation.

During these inflationary times, companies and countries are both focusing on lowering product and labor costs with changes to where they conduct business. At the same time, technological advancement can also lower prices. As an example, in 1972 the HP 3000 computer cost $95,000 versus today’s HP 8200 at $290. This is a cost reduction of 99% for a machine that is 30 million times more powerful and much more portable than the original unit that weighed ~300 pounds. Today’s technology continues to provide faster processing of all transactions, moves data storage to the cloud, and provides more efficient worldwide flow for communication and commerce. Companies will continue to utilize technology for cost savings.  

Irrespective of higher food prices, most Thanksgiving dinner traditions remain intact. Modifications may be made, but the spirit of the holiday remains. A fun fact about the first Thanksgiving in 1621 from the National Conference of State Legislatures is that just four women prepared food for the three-day harvest celebration feast. The guests included 90 Wampanoag People and 50 Colonists. The Pilgrims had the children serve as the adults ate their meal. May you enjoy this day filled with thanks and gratitude. Stay focused and plan accordingly. 

The opinions expressed are those of the writer as of November 15, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. This information is general in nature, it is not a complete statement of all information necessary for making an investment decision and is not a recommendation or solicitation to buy or sell any particular investment. Investing involves risk and the possible loss of principal invested. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Past performance may not be indicative of future results.

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