Will food and gas prices in California be lower in 2023? Here’s what economic experts say
Food prices in California will probably keep going up in 2023, but not as quickly as they have this year.
Gasoline prices are headed down, at least for now.
Interest rates are poised to keep climbing and the job outlook in the state is murky.
Those are the key predictions by California economic experts for 2023, a year that begins with even more uncertainty than usual.
“I, and others, have expected a slowdown in job growth for the past six months. Instead, the job market has held up surprisingly well nationwide and in California,” said Michael Bernick, an employment attorney with Duane Morris LLP and former director of the California Employment Development Department.
Bernick said he expects job growth to slow next year “as the increase in interest rates, inflation, decrease in business confidence, and economic slowdowns globally begin to bring employment impacts.”
His views largely mirror those of many others who study the California economy. They warn that economic ups and downs are the result of a variety of factors that are historically difficult to pinpoint.
A year ago, most economists predicted modest price increases. The UCLA Anderson forecast predicted prices in the state would rise 4.1% in 2022. Instead, prices in California are estimated to go up 7.4% this year.
Nationally, prices have gone up 7.1% over the 12 months ending in November, but in June were rising at an 9.1% annual rate.
The Federal Reserve raised its key interest rate seven times in 2022 in an effort to curb inflation, and signaled Wednesday it wasn’t done pushing rates higher.
This much seems apparent: “California’s economy is cooling. Paralleling the national trend, California’s economy has begun to show some softness and won’t be able to avoid a recession during 2023,” said Sung Won Sohn, president of SS Economics, a Los Angeles-based consulting firm.
Still, said Jerry Nickelsburg, UCLA Anderson School forecast director, “The good news is that unlike the past four slowdowns in economic growth we expect a milder impact on California’s economy whichever path the Federal Reserve decides to take.”
Here’s the outlook, as offered by several economists who analyze the state’s prospects:
More big price spikes?
Gasoline prices have dropped about $2 a gallon since their June peak in California. A gallon of regular gasoline should cost less than $4 by the start of 2023, said Patrick De Haan, head of petroleum analysis for GasBuddy, which tracks prices.
Food prices are also expected to “grow more slowly in 2023 than in 2022, but still at above historical average rates,” says the latest outlook from the federal Department of Agriculture’s Economic Research Service.
It projects food will cost 3% to 4% more next year overall, with food bought at grocery stores to increase somewhat less. USDA estimates that food prices this year will go up 9.5% to 10.5%.
Sohn was more measured about the path of inflation, citing several risks to price stability.
“There will be surprises on the inflation front,” Sohn said. “The war in Ukraine will continue to affect the prices of food and fuel. China’s reopening could be bumpy. Weather is always a major source of uncertainty.”
Fewer jobs?
California’s November unemployment rate was 4.1% and the state has surpassed the number of jobs before the COVID pandemic triggered an economic downturn in spring of 2020.
Analysts have warned for some time that the unemployment number is due to rise. The latest UCLA Anderson forecast, issued in December, projected that if there’s a national recession, California’s unemployment rate could average 4.4% next year. If there’s no recession the rate should stay roughly the same as it’s been this fall.
But the outlook is complicated. In November and early this month, Bernick noted, the state has seen more layoffs in tech and white collar fields.
At the same time, he said, “We see ongoing shortages for workers in the other fields. The divergence will continue in 2023. So far, even with increased wages in the direct care and blue collar jobs, the wage increases have not been sufficient to attract new workers.”
Employers seeking workers “in long term care facilities to care for the elderly and disabled to your corner dry cleaners are not able to find and retain employees,” he said.
Higher interest rates?
The Fed is widely expected to slow the pace of interest rate increases next year, particularly if price increases cool.
When it raised its key rate another half-point last week, it said in a statement that it remains committed to reducing the rate of inflation to 2%. But it also stressed it is well aware of the impact of its actions on the economy.
While mortgage interest rates have dropped slightly in recent weeks, they’re still far above levels of a year ago, with few prospects of falling significantly anytime soon.
“Buyers are priced out of the market and will have to delay their jump into homeownership,” said Mark Schniepp, director of the California Economic Forecast.
He advises businesses, though, to think creatively. Plenty of people will still be seeking to buy homes, Schniepp said, so “creative financing arrangements should work to sell homes in 2023.,” though using such methods don’t signal a return to a normal market.
Towards the end of the year, he predicted, real estate should rebound somewhat, as the economy begins to rebound.
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