- Americans are set to receive discounts on clothing, electronics, and toys this holiday season.
- But consumers are more in need of price relief on healthcare, tuition, and housing.
In the coming months, US shoppers are expected to see holiday-season discounts on clothing, electronics, and toys. That's because, after two years of rampant buying, Americans have pulled back on their spending in recent months and stores are seeking to entice them back.
But while every dollar saved counts in today's uncertain economy, these aren't the areas in which most people need price relief. And the Federal Reserve's ongoing interest-rate hikes are unlikely to solve the biggest contributors to inflation.
Historically, the kinds of things that are set to see those discounts have gotten much cheaper in the last few decades. As of July, prices for clothing, toys, and TVs have already fallen 2%, 72%, and 98%, respectively, since 2000, per an analysis of Bureau of Labor statistics data by the University of Michigan economist and senior fellow emeritus at the right-leaning American Enterprise Institute Mark Perry. Meanwhile, childcare, medical care, college tuition, and housing costs have risen 115%, 130%, 178%, and 80%, respectively.
And if anything, the coronavirus pandemic sent these prices even higher, says Claudia Sahm, a former Federal Reserve economist.
"Housing had risen a lot before," Sahm told Insider. "You could tell the same story for healthcare, childcare, tuition. All of them have a similar dynamic, where they were rising more quickly than overall inflation before COVID, and then COVID just smashed into them."
Prices of electronics, toys, and apparel could see "massive" discounts in the coming months of over 32%, per an Adobe Analytics forecast. But Americans will most likely continue to struggle with the costs that have surged the most the past two decades.
One analysis found the average annual cost of childcare in the US to be over $10,000 a year and over 10% of the median married couple's income. In 2020, US healthcare spending was nearly $12,000 a person, over $4,000 higher than any other high-income country's. Adjusted for inflation to 2020 dollars, the price to attend a four-year college was roughly $10,000 in 1980 — by 2020, it was nearly $30,000. And home prices have increased 1,600% since 1970 compared with overall inflation's 640% rise in the same time period.
Even if the Fed's rate hikes ease some of these costs a bit, they're unlikely to reverse the decades-long trend in price growth. The Fed's hikes have a direct impact on the housing market for instance, given that higher mortgage rates can slow demand. But rising rates have a less immediate impact on healthcare and childcare spending, which are arguably less discretionary as well. These factors could keep healthcare and childcare costs elevated, and even if home prices do fall across the US, rising mortgage rates could make some monthly payments just as expensive as ever.
As the chart reflects, even the pandemic and the inflation-ridden economy of the past few years haven't done much to disrupt the broader trends.
Over the past two decades, cheaper overseas manufacturing costs in countries like China, as well as increased global competition in these industries, have driven down prices for smartphones, TVs, and computers, for instance, says = Perry. Even the current bout of inflation hasn't dented those trends: Those categories have seen decreases of 21%, 18%, and 4% respectively over the past year. Apparel and toys have risen roughly 6% and 4% respectively, both below September's 8% rise in overall prices.
"The intense global competition for tradeable goods like clothing, footwear, electronics, TVs, etc. will ensure that the prices for those goods will continue to be very, very affordable for US consumers," Perry told Insider.
Perry says the "most concerning trends" are in the rising costs of college tuition and hospital services. While the reasons for these price spikes are uncertain and varied, Perry points to some speculation that greater government funding and regulation in industries like healthcare, education, and childcare have contributed to the rising prices.
In comparison, software, electronics, toys, and clothing – industries with less regulation — have seen prices fall, he wrote in a July blog post.
Perry sees some signs that higher education might see price relief, however — college tuition and fees increased only 0.90% last year, the smallest increase since at least 1978. This was due in part to declining college enrollment, which has been exacerbated in recent years by the pandemic and a rise in job opportunities that don't require a degree. When there's less demand for college, universities may think twice before jacking up tuition costs.
And after rising nearly three times the rate of inflation from 2000 to 2016, college textbook prices have only declined or risen slightly in recent years.