Consumers are keeping a close eye these days on swift increases in prices of food, gas and utilities. But another force has squeezed their wallets far more — yet far more slowly.
Since the 1980s, when inflation was last at the levels seen today, spending routines have changed: People now spend less on goods, such as food, and more on services, such as education and health care.
And over the last 20 years, prices for services have tripled. They've grown faster than prices of goods and faster than the wages people need to pay for everything.
"If you're a family with kids and you're paying for their health care or getting them to school or college, it's gotten harder and harder for the average household," said Mark Wright, director of research with the Federal Reserve Bank of Minneapolis.
Consumers are now experiencing sticker shock with every type of consumer good. But electronics, clothing and toys have actually fallen in price over the past two decades when compared with overall inflation.
"Broadly speaking, if you're selling something that's like a physical good, the prices of those things have tended to fall relative to everything else," Wright said. "The price of services like education and health care, they've tended to rise."
And because the need for services tend to be fixed and long term, it's hard to chop them out of the family budget at a moment like now, when meat prices are up about 10% from year-ago levels and gas prices up around 50%.
Less attention has been paid to prices on services recently because they haven't spiked like goods. In the latest Consumer Price Index, for instance, health insurance was up 1.7% in January vs. a year ago while college tuition and fees were up 1.9%. Both were far below the overall inflation rate of 7.5%.
But that doesn't tell the whole story.
From January 2007 to December 2021, health insurance in the U.S. rose 61.8%, according to the federal Bureau of Labor Statistics, with steep increases over the past three-and-a-half years. Since 2007, college tuition climbed 70.3%.
The Minnesota Department of Health reported that total health care spending in the state climbed 64% from 2007 to 2019. The report, based on both private and public spending, estimates health care spending in the state will increase faster from 2020 to 2030.
"In health care new technology becomes more expensive technology, new capabilities become more expensive capabilities," said Stefan Gildemeister, the economist with the health agency.
Gildemeister said consumers often urgently need the care that's available to them and they can't worry about prices in the moment. "The market doesn't really function like other markets where you have robust competition, transparent information," he added.
Those costs pressure small businesses as well. Health care premiums went up 6% for this year at Resoundant Inc., a medical technology company in Rochester with 10 employees. That follows a 5.5% increase in 2020. At that rate, the company's health care costs will nearly double this decade.
Since the company is small, it does not have the leverage of larger employers, said Kathy Anderson, its chief operating officer. "The cost, both to the company and to the employee, is more than it's ever been," she said.
Another strain on family budgets is education costs, which have far outpaced inflation since 2001. For the current school year, the average cost of tuition and fees for in-state students at public universities is $27,330. At private schools, it is $55,800.
Joanna Ramirez, Minnesota executive director of the nonprofit college coaching service College Possible, said any increases can be a burden for families.
"With our students, they come from low-income backgrounds, so any increases are really challenging," Ramirez said about the students who receive college-coaching services.
The amount of money in the average paycheck is growing nowhere near as quickly. In Minnesota wages are up 44.9% over 15 years from January 2007 through December 2021 according to data from the Minnesota Department of Employment and Economic Development.