A drop in gasoline prices offers some respite, but inflation still looms over Louisiana economy

Louisiana consumers and businesses saw some respite from inflation as the pump price for gasoline continued to tick lower this week. But many of the forces behind the four-decades-high surge in prices over the past year still loom over the local economy.

The latest bit of good news for consumers on Thursday was that the national average price for a gallon of regular gasoline slipped below $4 for the first time in five months and fell to an average of $3.61 per gallon in Louisiana. That followed a report Wednesday that the broad inflation index tracked by the federal government grew by 8.5% year-on-year in July, only slightly lower than the 40-year high growth rate of 9.1% seen in June.



Gasoline has fallen well under the $4.00 per gallon that once dominated gas stations throughout New Orleans, La. Thursday, Aug. 11, 2022. (Staff Photo by David Grunfeld, The Times-Picayune)




While any easing of cost pressures is welcome, Loren Scott, an independent economist in Baton Rouge, said the inflation rate in July remains a threat to economic growth.

“The thing that is going to ultimately get us on this is that the Federal Reserve is going to have to fight it, and the tools they’re going to have to use (i.e. raising interest rates) is going to cause us to go into recession in the first part of 2023,” Scott predicted.

Housing costs rising

The Federal Reserve is widely expected to increase interest rates again next month in an effort to drive up the cost of loans, mortgages, credit cards and other lending so as to cool spending and consumer prices.

Gasoline and diesel are important to the economy, but motor fuel makes up only 4% of the spending. The total energy cost for a typical U.S. household makes up about 8% of spending, whereas food accounts for about 14%.



Lighting and other furniture fill the main showroom Friday, July 29, 2022, at ReStore Midtown in Lafayette, La.




“The cost of getting to Walmart may have gotten cheaper but the cost of everything you have to buy there has not,” said Andrew Fitzgerald, senior vice president of business intelligence for the Baton Rouge Area Chamber of Commerce.

Meanwhile, housing accounts for nearly one-third of the average monthly spending for U.S. households, and that cost has soared. The typical U.S. renter is paying 25% more than last year, according to a July survey by Rent.com. In Louisiana, average rents are up an even frothier 35%, though the increases are lower for Baton Rouge, New Orleans and some other urban centers.

Coffee problems



Dylan Kokner, a manager at the PJ’s on Maple Street in New Orleans, fills an order Thursday, Aug. 11, 2022. While the rate of inflation has eased this week, the cost of doing business at PJ’s coffee chain continues rise. (Staff Photo by David Grunfeld, The Times-Picayune)




Dealing with the complexities of inflation in the past year has been tough for businesses as well.

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PJ’s Coffee, the Louisiana-based franchise operator, has 108 shops in the state and another 47 in other states. Inflation is putting a squeeze on the business, according to Chief Operating Officer Bill DiPaola.

He said the costs for ingredients and other materials have soared by 22% over the past year, while competitive pressures have meant he’s had to keep price increases for cappuccinos and lattes to between 5% and 8%.

“I don’t know of a single item out of the thousands that we source that hasn’t seen at least double-digit price increases, from the coffee, to blueberries, Hershey’s chocolate syrup, to the aluminum for cans,” DiPaola said.



Dylan Kokner, a manager at the PJ’s on Maple Street in New Orleans, fills an order Thursday, Aug. 11, 2022. While the rate of inflation has eased this week, the cost of doing business at PJ’s coffee chain continues rise. (Staff Photo by David Grunfeld, The Times-Picayune)




Like many other businesses, PJ’s hasn’t just seen the cost of all its raw materials rise. It has also been facing severe supply shortages. DiPaola noted, for example, how the company was suddenly told by its regular supplier of plastic cups for cold drinks that not only had prices soared from 8 cents a cup to 35 cents, but that they were prioritizing larger customers and could no longer deliver.

Filling in those kinds of gaps in the past year has meant PJ’s has had to review its retail prices about once a quarter instead of annually. Company officials have even thought about moving to digital price boards to accommodate the pace of price changes.



Dylan Kokner, a manager at the PJ’s on Maple Street in New Orleans, fills an order Thursday, Aug. 11, 2022. While the rate of inflation has eased this week, the cost of doing business at PJ’s coffee chain continues rise. (Staff Photo by David Grunfeld, The Times-Picayune)




“Clearly, there is some levelling off in headline inflation and that is good news,” DiPaola said. “But the problem is what is not changing: the difficulty in finding the items, and the people who make all the items, that go into the cost of producing a cup of coffee.”

Economic opportunities

Still, it is not all doom and gloom for the state’s economic outlook.

Fitzgerald notes, for example, that there is a large pipeline of projects waiting to start in the Baton Rouge area and a high number of job vacancies in construction. The interest rate increase expected next month might help spur that activity by giving people confidence that inflation is being tackled while also encouraging some people who have been out of the workforce and supported by stimulus money.

Scott also noted that there are a number of very large projects in the offing statewide that seem likely to commence soon.

These include several liquefied natural gas projects in the Lake Charles area and in Plaquemines Parish, the prospects for which have improved because of the energy crisis in Europe brought on by the Russian-Ukraine war.

“The good thing for Louisiana is that we tend not to go into recession as deep as the rest of the country because we do different things,” Scott said. “We don’t make durable goods, like cars or appliances, which are the things that get hit hardest when the Federal Reserve hits the brakes on spending.”

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