SWEET INFLATION

All the candy corn that was ever made, was made in 1911. ~ Lewis Black   

For a while I’ve seen headlines commenting on how citizens feel about our economy. They are predominantly not at all happy with what’s occurring in their economic lives. They’re upset that prices remain too high and employment opportunities are too restrained. That’s puzzling.

The latest annualized inflation rate in the US was a subdued 3.4%. December unemployment remained at a five-decade low of 3.7%. The US real (inflation-adjusted) GDP increased at a decent 3.3% annual growth rate in the fourth quarter of 2023. Wages grew 5.2%, a healthy clip. December’s retail sales increased 0.6%, flouting expectations. During the past year 2.7 million workers were added to total nonfarm employment. In January the economy unexpectedly added 353,000 jobs, about double what was anticipated. What’s not to like?

From an economic perspective, each of these macroeconomic changes is strictly positive, if not overdue. Especially when compared to the recent past, when inflation was flying twice as high and employment gains were largely declining.

How could people’s individual views be so distinctly different and glum from our macroeconomic performance? Ultimately, it’s because none of us live in the aggregated world of macroeconomic indicators like the Consumer Price Index (CPI) or the national unemployment rate. We live in real towns and cities, none of which exactly characterizes economists’ models of the entire macroeconomy.

The president’s re-election campaign is attempting to sell Joe to voters in terms of his successful efforts to protect liberal democracy from The Donald’s bombastic dark forces, his constructive legislative record and his management of the economy. Unfortunately, America’s likely voters seem far less moved by Joe’s protecting democracy than by improving their lives via quickly reducing their housing and food costs. This is a tall order that’s a hefty political challenge for the current and any future president. 

President Biden impressively has signed into law two beneficial pieces of legislation that authorized federal expenditures totaling a sizable $2.09 trillion. First was the Bipartisan Infrastructure Bill of 2021 and then the Inflation Reduction Act (IRA) of 2022. Many analysts believe these sizeable expenditures actually have contributed a bit to inflation, not reduced it. Despite its broad title, the IRA has begun to lessen rising prices only by capping a small number of prescription drug prices for Medicare recipients. That’s certainly a good thing, but doesn’t have broad impacts. The IRA’s primary goal has been to reduce the threatening effects of climate change.

Instead, inflation reduction has been largely accomplished by the Federal Reserve Bank’s program of raising the Federal Funds (interest) Rate. As mentioned, the inflation rate has lessened thankfully without inducing a recession so far, but folks unhappily keep seeing higher, rising prices. In a recent survey, more than two-thirds of voters said inflation has hit them hardest through higher food prices. That’s 50% greater than any other category of purchased goods.

Economists have suggested an explanation for the political conundrum of improved macroeconomic performance not being appreciated by many people. It’s an interesting and sweet one that involves Snickers candy bars. A friend alerted me to this idea (thanks Robert): we become more aware of goods’ price changes the more frequently we buy them. In addition to groceries, frequently-bought goods include convenience and impulse purchases, like candy and snacks. This helps explain why Snickers bars occupy primo grocery store real estate within easy reach of shoppers as they unload their carts at the checkout line.

Snickers bars for all

 In other words, one of the president’s challenges is there’s a world of difference between the increased price of items on grocery-stores’ aisles and statistical representations of the macroeconomy that he often cites in speeches.

Mars, Inc. domestically produces over 500 million Snickers bars each year. That’s an enormous quantity of chocolate-nougat-caramel-peanut candy that is frequently bought by legions of folks. With reason, Snickers is often cited as the king of the candy aisle. The very first Snickers bar was crafted 94 years ago by Frank C. Mars in Chicago. The Snickers bar, which was named after a favorite horse of the Mars family, originally sold for 5 cents. Unfortunately, there’s no annual time series of Snickers’ prices. Nevertheless the chart below shows the cost of the Snickers bars in various years since its introduction.

The Price of a Snickers bar  

Year	Price
1930	$0.05
1978	$0.25
1981	$0.30
1983	$0.50
2012	$1.00
2024	$1.79

There are two reasons for Snickers most recent, sizeable price increases: higher sugar and higher cocoa prices. First, it’s impossible to separate the price of Snickers bars from the price of sugar, its major ingredient. The US price of sugar increased nearly 9% last year. The domestic prices of sugar and sweets rose more than 2 ½ times higher than the overall CPI. Having a sweet tooth is evermore expensive. It’s no surprise that a majority of surveyed voters indicate that inflationary food prices, including sugar and candy, have hit them hardest.

Second, Snickers bars are covered in chocolate and have a fair amount of additional cocoa inside as well. The global price of cocoa rose a stratospheric 73% during the past year. Poor growing conditions in West Africa, where much of the world’s cocoa beans are grown, have shrunk cocoa powder production, hence prices have rocketed.

The domestically-produced sugar you may put into your morning coffee or taste in a Snickers bar is likely one of the most regulated of any consumer item, but not to consumers’ advantage. For over 50 years, domestic sugar producers have benefited from generous government policies. These economic policies include US import restrictions like high tariffs and strict quotas, as well as robust US production subsidies. Domestic sugarcane and sugar beet producers are well protected from cheaper imported sugar. These federal policies effectively restrict sugar imports to about 15% of the US market, which is a sizeable $13 billion. The relatively few, large domestic sugar producers act as a high-priced cartel buoyed by full government support.

Consequently, the price of American sugar towers well above the world price. In December the US price was 27% higher than the world sugar price. Domestic sugar producers taste sweet success. Sugar consumers and confectioners like Mars taste only bitterness. Accordingly, the cost of making sugar-intensive Snickers bars in Texas and other locations is considerably higher because of federal policy, with consumers picking up the added tab. That tastes expensive. Such increased prices easily make consumers feel that they remain too elevated. If such feelings endure, they will not help the president come November.