Florida: the rules are different here on rampant inflation, too

There is no way to sugarcoat this: inflation in South Florida is in double digits, a percentage point and a half higher than for the nation as a whole.

At the same time the nation was being told last week that June inflation was 9.1%, an unnoticed federal report for South Florida said the inflation rate here was 10.6%.

Numbers haven’t been that high in 40 years. The Federal Reserve, which tries to moderate inflation, never anticipated anything like this as recently as six months ago. Now it’s scrambling to decide whether to increase interest rates by three-quarters of a point, a full point, or whatever at its July 26-27 meeting.

At issue, among other things, are consumer views of the economy that determine how they save, spend, and set income goals. The New York Times reported Saturday that the vast majority of Americans have negative views of our economy even while jobs are plentiful, salaries are rising, and their own finances are frequently strong. But they worry about what lies ahead.

Consumer expectations have a great deal to do with whether inflation keeps rising, moderates or declines. If we anticipate inflation will spiral, we’re more likely to spend now before our money loses value and less likely to save, because we fear that anything we save will be worth less tomorrow than today. That consumer behavior can amplify the economic swings of inflation.

This discussion is new for most Miamians. In listing five major questions for 2022 in this column last Dec. 30, I asked:

“What is the path of inflation?

“We’ve lived for years in a world where younger wage earners have never considered the path of rising costs as a major factor. Yet our grandparents or great-grandparents may have lived through dark days in Europe or Latin America where costs of everything skyrocketed out of sight and money had to be spent today before losing half of its value tomorrow.

“A common guess for 2022 is 2.6% inflation, which would not be a major game-changer. But what is the chance of that estimate being widely off the mark, and what could it mean for everything from government and business to personal finance? This is a new consideration for many in the US workforce.” 

As we are painfully aware, the estimate among government economists of 2.6% inflation in 2022 was indeed widely off the mark. June inflation was four times as high as they anticipated a half year earlier. That doesn’t spread confidence that they know much about what’s happening to the economy – and certainly not that they know how to control it.

Of course, nobody last year was predicting a war in Ukraine that threw all energy cost estimates far off track. But even if you factor out energy and food and get to a figure that economists call core inflation, they still missed the mark by a mile. Core inflation in June was 5.9% nationally and 7.9% in Miami-Dade, Broward and Palm Beach counties.

The differences between levels of inflation here and nationally show that one size doesn’t fit all in the economy. It certainly illustrates the 1986 state tourism industry slogan: “Florida: the rules are different here.”

To illustrate that difference, while figures that the US Bureau of Labor Statistics issued last week show that the cost of eating out rose 7.7% nationally, the annual increase in South Florida was a less-painful 4.9%. As the national cost of clothing rose 5.2% over the year, South Florida’s increase was a more modest 2.4%. And the costs of dairy products rose 2% in South Florida but 13.5% nationally.

On the other hand, while the cost of electricity was rising 13.7% nationally over the year, in South Florida the rise was 33.3%, the federal report shows. And while national costs of hospital services rose 3.9%, medical care commodities 3.2% and physicians’ services 1%, in South Florida medical care costs jumped 6%.

If you want to drown your sorrows from all of these increases, think of this disparity: national costs of alcoholic beverages rose 4% last year, but in South Florida those costs actually decreased two-tenths of a percent, the only consumer cost to actually decline here.

Think too of this: while South Florida is harder hit than the nation as a whole by inflation, it’s also wiping out unemployment faster. Unemployment in Miami-Dade in May (the most recent figure) was down to 2.3%, nearing all-time lows. Jobs are being added at rising pay rates. That’s good.

Unfortunately, while, more people are working for more money, they are also paying more for everything. That inflationary cycle is good in very small doses but bad in large amounts – and the amounts are larger now than we have seen in four decades.

This column aims for solutions, but in this case those solutions are largely up to the Federal Reserve at its meeting next week. 

The Fed’s most important contribution will not be the percentage it puts on an interest rate hike but the percentage of confidence that it can build in the public that it actually knows what it’s doing about inflation and that it’s headed in the right direction. The most important factor in reining in runaway inflation is a belief that it’s actually under control.

As Franklin Delano Roosevelt said in his inaugural address during the Great Depression: “The only thing we have to fear is fear itself.”