One reason inflation appears to sting a bit more in Alaska right now is because it is one of the few places in the country where prices actually dropped during the pandemic.
The Alaska Department of Labor on Friday (7-1-22) published its latest issue of “Trends.” The magazine-style report examines changes in the cost of living in Alaska over the past year. And while some of the statistics – like the dip in prices in 2020 – are surprising, other statistics will sound familiar to Alaskans who lived through the pipeline boom.
Inflation in the United States in 2020 was running at 1.2 percent, a little lower than the previous four or five years. In Alaska, however, inflation in 2020 was at minus 1.16 percent.
We didn’t really hear much about that, because for over a decade inflation has been a bit of a snooze.
“I mean, it was a very boring topic for years,” said Neil Fried, a research economist with the Alaska Department of Labor. “The only reason people ever called me about it prior to 2020 was because it is the most practical economic statistic out there.”
Fried is co-author of the July issue of “Trends.” A lot of routine things like Social Security checks, rental agreements, and child support are indexed to inflation — hence its practicality as a statistic.
But now with inflation hitting 7.5 percent in the first three months of this year, it is not so boring anymore. We talk about it every time we fill up the car, or shop for groceries.
“It’s it’s capturing a lot of people’s attention and freaking some people out because if you’re under 40 you never experienced this kind of inflation — maybe even under 50 — have never experienced this kind of inflation before,” said Fried. “I mean, it’s been a very long time.”
“A very long time” means the mid-70s, when inflation in Alaska peaked at nearly 14-percent. Inflation in the state reached double-digits again in 1979 and 1980. Inflation was running high across the country at the time, so it was by no means unique to Alaska. But unlike other parts of the US, Alaska’s economy was booming during the construction of the TransAlaska Pipeline.
“We were way under capacity for housing, at that time, and for services of all kinds and restaurants those things,” Fried observed. “And the pipeline was just screaming for workers. And they were paying premium wages that had never ever been seen before. And actually have never been seen since. I mean, if you adjust those wages for inflation today, they’re still outrageous. And so employers that wanted to keep their workers, or attract other workers, because there was so much turnover because everyone’s quitting to go work on the slope or whatever. There’s some similarity to today, although it was much more extreme.”
I called Fried because his report on inflation during the pipeline era sounded a lot like Sitka today. The community has gone overnight to record-levels of tourism – with packed streets, hotels, and lodges. The harbors have been vacated as trollers head out on what’s expected to be a 10-12 day king opening. SEARHC is building housing units by the dozen, and has broken ground on a new hospital. Everything Fried describes about the pipeline seems applicable here, and prices have a boom-town feel: A quarter-pounder with cheese that costs $5.49 in Juneau, as reported in “Trends,” costs $9.59 in Sitka. A bottle of Kraft Parmesan that costs $4.58 in Fairbanks, costs $8.29 in Sitka. These products – and many others – are used to calculate the consumer price index. Sitka appears to be running significantly over the state CPI, but other items are more balanced. A six-pack of Heineken is only a dollar more than in Anchorage, and a dozen eggs are just $.50 cents more – $2.49 versus $1.99.
Since everything that comes to Sitka is brought by barge or air, the 23-percent spike in overall transportation costs statewide is a major factor in the increase in groceries, but some things, like the cost of an espresso and baked goods, shouldn’t be as volatile.
Fried says the problem is likely elsewhere.
“Like lots of other places. Sitka is having a hard time finding workers, especially seasonal workers,” said Fried. “But even workers in general, which means you have to pay more to attract those workers. Which means that’s another big — and maybe the major –ingredient in selling coffee is the labor costs.”
Eventually, Alaska’s pipeline economy cooled, and so did inflation. This “most practical statistic” was boring again. Fried is unwilling to speculate on where inflation is headed next. In “Trends” he writes, “Forecasting inflation has a poor track record even when circumstances are less volatile. So the rest of 2022 is an even bigger question mark than usual.”