June 2, 2022 by Ethan Gilbert
Food and Energy prices have risen steadily from January 2021 through May 2022. Over that 17-month period, the direct cost of food and energy has increased by 22%, which has been a huge driver of inflation. That 22% increase means it is a larger share of total consumer spending. As of March, it stood at 12.5% of spending, an increase from 11.5% at the start of 2021.
While that is a lot, if you put it in historical context, the cost of food and energy is still significantly cheaper than it has been on average.
Prior to the 1980s, we used to spend well over 20% of our budget on food and energy. The biggest driver of the decline has been the reduction in the cost of food. While this chart is generally positive, pessimists can look at it and make some valid points. First, the decline has not been very significant in the last 20 years and it’s even gone up relative to the last five. Second, a decline in the cost of food may not a positive if it means consumers are eating cheaper, unhealthier things.
That said, the good outweighs the bad and it’s another reminder it’s better to be a consumer today than at any point in history. My suspicion is that this, like most everything in the world, will continue to improve with time.