NerdWallet's Smart Money Podcast - Putting the "7% Rule" to the Test on a Real Mortgage. Plus, an Economist on Stubborn Food Prices

Episode Date: August 27, 2026

Learn whether the "7% rule" for prioritizing debt payoff over investing applies to your mortgage. Plus: why your grocery bill keeps climbing. Hosts Sean Pyles, CFP®, and Elizabeth Ayoola talk with Max, a product designer in Portland who was laid off from his tech job earlier this year, about whether the so-called "7% rule" applies to something as big as a mortgage. They dig into when refinancing a 7.2% mortgage actually makes sense, why Max shouldn't wait to pay off his home before investing, whether to grow his emergency fund from six months to nine given the volatility in tech hiring, and how much cash is too much to hold outside the market. Then, NerdWallet's Anna Helhoski talks with David Ortega, a professor of food economics and policy at Michigan State University, about why grocery prices haven't come down even as inflation cools. Ortega explains that food prices are still more than 30% higher than before the pandemic, why eggs, beef and tomatoes have moved so differently in price, and how grocery chains' growing use of dynamic, airline-style pricing could shape what shoppers pay next. Subscribe to our podcast’s free email newsletter for bonus content and more from our hosts at https://smartmoney-nerdwallet.beehiiv.com/  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header Smart Money’s YouTube Channel: https://youtube.com/@nerdwalletsmartmoney To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. *The show notes were created with the assistance of AI. They have been reviewed by our editorial team for accuracy and quality. Learn more about your ad choices. Visit megaphone.fm/adchoices

Which is the better path to getting rich, paying off debt or investing? Today, we'll talk about which priority should come first. Welcome to Nerd Wallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. My name hasn't changed. I'm Elizabeth Ayola. We are also, I want to let you guys know in Portland, Oregon, which is Sean's hometown. I'm sure you know if you listen to the show.

And we have a special guest here today. We're going to be talking about how you can increase your time. chances of getting a favorable rate of return with Max. Hello, Max. Hi. Welcome to Smart Money. Thank you. So you live in Portland. We like to get to know our guests a little bit before diving into all the money stuff. So tell us what's your favorite thing about Portland? I think probably just like the culture, progressive politics and just like embracing the weird. Amazing food. Yeah, amazing food is also good and nature. This is my first time here. And yesterday I took a walk around And I definitely saw some weird things.

So, yeah. Yeah. I was like, hmm. So for you, Elizabeth, what's the weirdest that you've seen in Portland so far? I don't think I could say it on the show. I think I might know. Because we drove by at the same time.

Yeah, yeah. It was a lot going on. More for smart money after dark. Another one for that episode. I keep saying we're going to make. Okay, great. And where in Portland are you? And what do you do for work?

I'm living in southeast Portland. And I'm a product designer. Oh, what kind of products? Like software, like SaaS products. and that kind of thing. You know, that takes me back to a time when I was really broke creative and I was like, well, what careers make money? And I remember seeing SaaS writing.

Product reviews had pretty high pace. So it's cool that you're in that line of work. And Southeast, I feel like that's where like the real Portlanders live. I live in Southeast and that's, I guess, maybe my bias there. But it's a very neighborhoody part. It's a great, cozy little area. Yeah. Yeah, I love it.

Great. So talk with us about your current financial situation. How are you feeling about your finances if things have been good, things been wrong, things been rocky. What's the general tone right now? In general, I think things have been pretty good. I'm kind of hitting the big marks in terms of my 401k, doing a backdoor raw, have a six-month emergency fund, maxing out my HSA. My biggest question is just like investing versus debt. Frequently heard that you should pay down any debts over 7% before you start investing. And I bought a house last year. Oh, congratulations.

7.2% interest rate. Yeah, a little bit of sweet there. Yeah. Home ownership, but also what a high interest rate. Yeah, it is. And so I'm wondering, you know, like does that 7% rule really apply to things like mortgage? Because it seems to me like it doesn't make a lot of sense to pay off an entire mortgage before I start investing. Right. And so where are you in terms of your 401 balance? Do you know? You said you have six months in savings, but just in terms of like your general money management, what's your habit there? How are you practicing that? Yeah, I've got, I think, about 340,000 in my 401K. Really good. And then about 160. thousand in a taxable brokerage account. Wonderful. The job pays pretty well, I imagine. And when we spoke before we got on, you mentioned that you'd recently lost your job.

Are you still looking for work or what's the status of that? Yeah, I am still looking for work. So I got laid off at the end of March. I'm sorry to hear that. Sorry to hear you. But glad you have emergency savings. Yeah. Yeah.

And so far I've been like managing with like unemployment and severance pay. So I haven't even had to dip into my emergency fund yet, which is nice. That's great to hear. And how long do you have severance for? It was like eight weeks severance. So you're about at the end of that? I mean, it was paid out in a lump sum. I see.

Okay. How has this changed the way that you're thinking about your money on a day-to-day basis? Well, for now I've kind of like taken a step back from like doing extra investing just to like keep some cash on hand in case I end up needing it. Once I have a job again, probably my first order of business would be, you know, if I do end up dipping into my emergency fund, building that back up and then starting to invest again. And then, Max, how are you feeling about the mortgage? because I know that can be a heavy burden sometimes when you lose your primary source of income and then you're thinking I have this big house bill to pay off. So how are you feeling there?

Mostly good for now. I've accounted for that with my emergency fund and everything. It's not great, but it's not really any different than when I was renting and had a rent bill to pay. And are you getting any help with your mortgage? Is anyone living with you? No, not right now. Okay. Is that something that you would maybe consider just to potentially make your mortgage more affordable?

Or do you feel that the cost is reasonable enough? I think the cost is reasonable enough for now. Okay. Because also living alone is very nice. Yes. It's hard to give that up. Yeah. Let's talk about your main question around whether you should be paying off your debt entirely

before you begin to invest in earnest. Talk with us about what you've seen around like the 7% rule. You wrote to us and you mentioned the 7% rule that I hadn't seen that number specifically before, but give us some context for that. Yeah. I've just heard like in general you want to pay off debt before you start investing. And that obviously makes sense for big things like, you know, credit card debt. Right, where your APR can be north of 20%.

Right. But I have heard that like 7% number and it's like, well, okay, but my mortgage is just over that. Right. Is that really count? So I was digging a bit into where that may have come from because I haven't come across. I've seen some on social media about it, but it's like in terms of reading like financial blogs, I haven't seen a lot of advisors discuss that the 7% rule. So part of me thinks it might just be a creation of social media.

Okay. So take it with a grain of salt. But the idea potentially is that, you know, the average annual stock market return of the past century has been about 10%. And then if you factor in inflation of like two to three percent, then you would kind of net a return of around 7%. So that may be where the 7% number has come from, but I think it could be also a little arbitrary. And so it's nice to seek out at the bottom line what's going to get you the best return for your money. And so that's why you might think about, yeah, you're probably getting a better return by paying off a credit card debt than investing money.

However, you wouldn't want to wait 30 years to pay off your mortgage before you start investing in earnest. And so it seems like thus far up until you lost your job, you'd been kind of splitting the difference. How had you approached paying off your mortgage and investing? So I've been putting about an extra $500 a month towards my mortgage and then investing around $1,000 a month in a taxable brokerage account in addition to maxing all my other accounts. Yeah. So it seems like you actually have quite a fair amount of room in your budget for. savings and investing. Talk with us about kind of your budget generally. From what I'm gathering, I haven't looked at all of your numbers, that your needs, your 50% category maybe is actually lower

than that. How have you been managing your budget? I haven't really been like doing a whole lot of managing other than like I have a general idea of what my monthly expenses are. I have a pretty good idea like what my mortgage is and my other like my car payment and then approximately what my credit card bill is each month and I kind of figure from there. That's really common for a lot of folks who like make past a certain amount where like you're comfortable you don't have to sweat like the fine details of like every single dollar frankly that's often how I manage my budget I know where things are going I am paying myself first through my investments in my various savings accounts but I'm not the type to do zero based budgeting where I'm tracking every single dollar

because it's just a little bit too anal retentive for me I like things to be a little bit loosey goosey while having all your bases covered so it seems like you were doing something similar I imagine that's changed a little bit given your current employment situation a little But yeah, just in terms of cutting back on some of the more like fun spending, keeping an eye on things, I guess, keeping an eye on like how much is in my bank account. Well, the 7% rule aside, how do you feel about how you're currently budgeting? Because I know sometimes we hear things online and also your strategy for paying down your mortgage and investing. And then sometimes we hear things online and we go, oh, am I doing it wrong?

And we try to adjust our strategy for that. So how do you feel isolated of the 7% rule about your trajectory to paying off your house and also investing for retirement? I feel pretty good overall. I think I'm, like I said, I'm hitting kind of those big target things. I would love to not have a house payment in retirement, although at this point, like having just bought a house last year, I don't know how realistic that is. But you seem motivated by debt payoff. You're paying 500 extra amount to your mortgage, which is a great goal and the great thing to accomplish. A lot of folks aren't doing that. How do you feel about debt generally? Is it something that you don't like to have? Like, for me, you know, I have my mortgage. I'm, you know, fortunate to have a lower interest rate. My monthly payment isn't too crazy. So I'm actually fine kind of just paying that amount each month and not putting too much extra toward it. But I get the impression that you are not a fan of having debt. Not really. And I think, you know, like the way I was raised, my parents were pretty anti-deat.

So always wanting to get everything paid off. And that was a big thing that they wanted was like no mortgage payment once they were retired. They talked to you about finances or did you learn that in retrospect as an adult? Or did you hear that as a child? I think I heard it around the time they retired. Okay. So like young adulthood. Yeah. So why did your parents finally start talking about money to you at that time versus when you were growing up?

Money had been a part of the conversation when I was growing up, just not specifically like paying off the mortgage. It kind of came up when they retired that they were happy to not have that mortgage payment anymore. Yeah, I bet. I want to hear a little bit more about your retirement trajectory. How far out do you think you might be from that goal? I'd like to retire early. So maybe in like my mid to late 50s, so maybe another 10 or 15 years. And have you done any planning towards that in terms of like seeing how? your money might grow and how far away you are from that goal. Since you're such a planner, it sounds like you have. A little bit, yeah.

So when I opened my taxable brokerage account with Betterment, I'm doing their Robo Advisor program. They had like a free 60 day trial of like meeting with a letter, I guess it was their premium plan where you get to talk with financial advisor. So I had a few sessions with them and just kind of like had them take a look at everything and make sure I was on track. And then you canceled before the 60 days were ready. Yes.

That's the savvy move. Cost effective. Well, Max, I'm also curious, so since you say you want to retire within 10 to 15 years, and then you also would like to retire without a house payment, do you have a number of years that you would like to pay that mortgage off then? Not specifically. And, you know, like if it ends up being like the first few years of retirement, maybe I'm still having the house payment, I would be okay with that. Eventually, it would be kind of nice to be free from that burden. Let's talk a little bit about refinancing because having that 7% interest rate isn't very fun. Have you looked into this at all?

A little bit. Okay. Yeah, that's something I asked the financial advisor about, and I've also talked to my mortgage lender. And what did they say? They said to target around, like when interest rates are about five and a half to six percent, maybe. Given our current interest rate environment, if you can get even three quarters of a percentage off, it could be worth refinancing. In general, if we were in maybe a lower rate environment, you would want to wait even longer, maybe like 1% to 3% of a lower interest rate. But just if you do the math and you see how much we might be able to save by just shaving off three quarters of a percent to 1%, that could help you quite a lot. I looked at interest rates this morning and they were around 6.5%. It seems like they've been going up recently as a result of inflation caused by the war with Iran.

We're just seeing this trickle across the economy. So it's not a great time to refinance necessarily, but maybe in six months, if things calm down, inflation could be in a different place. And thus your interest rates may also be a little bit more favorable for refinancing. And then also thinking about your break-even point because you're going to have costs associated with refinancing. So you need to know at what point you're going to be coming out ahead. It seems like you're committed to staying in this house long term or no? Yeah, I mean, probably like at least the next five or ten years.

Okay, because it might take five to seven years to actually hit that break-even point. So you wouldn't want to, you know, spend all the money to refinance and then not actually come out ahead. Yeah. I know that you said you lost your job. You're currently on a job hunt and you were thinking about increasing your emergency fund from six to nine months. So talk to us about why you're considering that. Well, I work in tech, which generally pays quite well, but it's also a bit unstable. There's been a lot of layoffs in the industry the last few years. So given that, I was just kind of wondering, would it be wise to, you know, bump up that emergency? savings a little bit. And then I was also wondering if I could kind of use my taxable brokerage account as like a backup to my six months emergency savings plan. Like I don't, you know, want to dip into that. But it's like in case of emergency, you know, break the glass kind of thing. And if I'm clear you're saying in case your emergency savings runs out, can you tap into the brokerage account?

Yeah. I personally have done that before. Definitely a last resort, but it's better than tapping into your 401k and getting those penalties and taxes. But you are still going to pay capital gains taxes when you sell those investments, as I'm sure you might know. So I had to pay capital gains taxes. But again, for me, it's better than tapping into a 401k. And given the current job market, is taking tech workers around 9.7 months to find a new job, according to the United Way. And they're often averaging around 100 interviews before finding a job, not to make a bad situation that you're in

even more apparent to you. You're the exception to the rule max. Yeah. You'll find something soon. We're certain of it. But that's all to say. it actually might not be a bad idea to up that emergency fund to nine months just so you have a little bit more of a cushion because eventually the money that you got from being laid off is going to run out. How long do you have unemployment for? Six months and it's been about four. So that gives you some time to think about maybe increasing that emergency fund and then living off of that. I agree with Elizabeth that if you do completely deplete your emergency fund tapping into that brokerage,

it might be a smart idea. Just be aware that there are tax consequences that come with selling stock, of course. so you'll have to mind that later, but hopefully nine months from now, you should be comfortably in a new job. And you won't even have to worry about that. Do you have a certain goal for this brokerage currently, or is it kind of like an early retirement fund? It's kind of just an early retirement fund. I don't have anything that I'm specifically saving towards. Yeah, but hey, you're regularly investing or you were until quite recently, so that's laudable.

What I'm hearing is that you want to do traditional fire, right? To be clear, so you want to stop working all together, or do you still want to do? dabble into things. I'm not quite sure. I think, you know, once I get to that point, I might want to still do, like, some, like, part-time work, but I'd like to at least have the option of completely retiring. And what kind of work do you enjoy? What do you envision yourself doing in retirement? I'm honestly not sure. And that's okay, too. That's okay, too. You have time to figure that out. What kind of hobbies do you have outside of work? What brings you joy and what do you feel excited about. Well, I like, you know, being outdoors and the Pacific Northwest. Being unemployed in

the summer in Portland has not been all bad. I've been getting out and doing a lot of like paddleboarding and hiking. It's really nice being able to do that on like weekdays when it's not as crowded. Definitely. I got a question for you. I got a question. We were having dinner last night and talking about paddle boarding. Specifically paddle boards. And Sean is thinking about buying a paddle board from, was it Walmart? Costco. Thank you. Costco. Yes. They have a pretty good deal on one. But he needs to justify the expense. And we were talking about the hassle of maybe deflating and reflating and storage. So how do you do it? I got mine from Costco as well. So I highly recommend them. Costco, this is not free advertisement. Maybe they need to give us a voucher. Yeah, sponsor the show,

Costco. I mean, my first one had a leak in it. So it was really nice. Just with their return policy being able to take it back. But you get use out of it. I'm thinking about the cost per use. Realistically, I probably would use it three times a year. And so that would be $100 a use, the first season. We were talking with our producer test. just out of the frame here, who also bought a Costco paddleboard and never even opened the box and then sold it. So I'm hoping that that wouldn't be my fate. But it seems like you get a good amount of use out of it. I am.

How often? I'm getting out there like two or three times a week right now. Again, not having a job helps a lot with that. Yes. Yeah. Yeah. But yeah, I really enjoy it. Part of why I was asking you about your hobbies is because that can be a natural segue into a different type of work after like your traditional job path.

So like for me, I love gardening. maybe work at like a garden center or like doing some kind of landscaping work. Have you thought about what kind of work might be of interest to you in that kind of thing? I mean, I've thought about it a little bit and I haven't really come up with anything that sounds good. But you like the outdoors in nature. You could potentially be a park ranger. Yeah. Something like that, potentially. Yeah. It's okay to not know what you want to do. We actually spoke to someone earlier this week. The episode will be coming out later named J.D. Roth. He was lucky enough to retire early, I believe around 40, and then he just had this thing after retiree where he didn't know what he wanted to do.

And he was kind of aimlessly flailing. And then he discovered some hobbies. So now he is doing oil painting, water paint. But I guess my point is sometimes you don't have an exact plan of what you want to do after you retire, but you figure it out. Right. But it's good to start thinking about it early because some people end up going back to work, which is not a terrible thing. Sounds terrible with me. But I know someone who retired early.

And then he felt a little depressed because his whole purpose was tired. into working and he didn't feel like he had an identity once he stopped working. So, and you just use the word purpose. And we talk a lot about your money values and what you want, what's motivating your decisions here. When you think about why you want to retire early, why you want to pay off your debt, what's driving that for you? I guess I just like the freedom of not having to be beholden to some corporations. I'm especially feeling that right now. It's been kind of nice, you know, not having to work, especially like I said during the summer. And just like the whole experience of like having to job hunt and like beg for a job so that you can work 40 hours a week.

Yeah. It's tough. It's tough and it's rough. So really the desire is financial independence. Retire early. Fire. Which is the acronym Empire. Yes. Max, you also wrote to us about what's the point at which you have too much cash? What are you thinking there and how much cash do you have just to remind us? So in addition to the six months emergency fund, I sold a bunch of stock options last. year used part of that to put the down payment on my house and then part of it I did like a lump sum into the Robo Advisor and then part of it I've been holding back in a high yield savings account and kind of like doing dollar cost averaging investments so I do still have like some of that cash as well okay how much cash did you get from selling that stock 230,000 nice okay and how much

do you still have I invested about 100,000 in the Robo Advisor and then I think I have about another 40,000 in cash just curious so I know you said you were thinking about increasing your emergency from from six to nine months, would you potentially draw the extra money from there? Yeah, I mean, like with this bout of unemployment, if it comes to that, I would draw from there. I was thinking more in terms of like once I have a job again and I'm like building up my emergency fund, whether I should target nine months instead of six. I think it makes sense to hold on to this cash right now, just given your employment situation. But in general, I mean, it's not a bad idea to have like $40,000 in cashes for other financial goals, especially

as a homeowner. Do you have a home improvement or home repair fund? Not at the moment. It's a new construction and it's a townhouse. So the exterior is covered by an HOA. So far, I haven't been too concerned about repairs. Okay, we spoke yesterday with a Portland broker who has been very curious about the new townhouses going up. I've been seeing them pop up around Portland too. And she was wondering how they'll kind of play out in the market over time. I might circle back with you in a few years and just say, hey, how's your home value? How are you liking the build of it? Because they look nice, but with some new construction, you just, you never know how it's really going to be. I bought a house that was new construction, and it was fortunately pretty good, but you do have to

spot check quality control things every so often. But it's just been nice to have, frankly, more housing in this town. So congrats on getting into one of those. Even though it is a new build, I mean, I had repairs in my house in the first couple years. So a general benchmark is to say between 1 and 3% of your home's value each year in an account just for things that pop up. So because it's new build, you could probably get away with 1%, just given everything that you hopefully won't have to do to the house. But if you have something that you want to do, if you want to paint or improve the inside, you have free time.

So you might get the itch to like redecorate or something. Yeah, I've done a little bit of that. Yeah. I use my home repair fund for things like that too occasionally just because, you know, like last year I bought a new bed because my bed frame was seven years old and just falling apart. So I think that is okay to use some of that home repair fund for things like this, too. But something to think about. And in terms of having too much cash, I think the primary concern there is usually inflation.

But you said you have it in a high-yield savings account, right? See, our guests just be doing all the things. You want us to tell you you're doing a good job and you are. Okay? So it's in a high-yel-saves account. It's keeping pace, hopefully, with inflation. You're doing dollar cost averaging. So it sounds like you're in a good spot with the money.

I think the more concern aside from inflation is people who hold cash. He once had a listener who was holding onto 200K and didn't want to invest it. It was scared to invest it, but you're already doing the investing. So, you know, it's about your comfortability at this point and what works best for your goals. And how do you feel about everything you've done with your finances? I mean, you ticked off an impressive list of accomplishments in terms of where your 401k is, how much you have saved, your investments. How do you feel about all of that?

I feel pretty good about it, although I didn't really get into like investing until the last, like, few years. So I definitely kind of regret not starting sooner. And what was the push? What got you to start? It was, you know, I got to the point where I just felt like I had like the extra of money to invest, like, once my income hit a certain level. So for a long time, I was investing enough in my 401K to get my company match and not a whole lot beyond that. I started reading, like, some personal finance blogs and, you know, was making a little bit more money and was like, okay, I need to figure out this, like, IRA thing and, you know, maybe foot a little bit more in my 401K. It just makes me think in a previous recording we did. we were talking about how it's never too late to start investing, and you can still hit your goals,

no matter what age you are, where you're starting as long as you're focused and have a strategy. So you're a primary example of how much you've done in just a few years. Given what we've talked about so far, how are you currently thinking about that sort of payoff debt versus investing decision that brought you here in the first place? I guess probably about the same in terms of splitting the difference, probably putting a little bit more into investing, but also trying to pay off my home. I hope it's reassuring that you don't have to pay off your entire mortgage before you start investing. Because you would miss out on all of the growth opportunity that time really brings you.

And that's your greatest asset when it comes to investing is just the time that's on your side. Right. And like with a home, like investing too much in that, it kind of feels like I'd be tying up a lot of money into an asset that is not very liquid. Yes, absolutely. Which is another concern. Yeah. And also these are things that you can tackle more head on when your employment is a little more stable. Because that seems like it's your more immediate priority is just finding another job. and being able to invest again.

So where do you see your finances going over the next six months or so? What decisions do you think you might make to get to a better place? I think I'm on a pretty good track right now. Obviously, the next six months are going to be largely dependent on whether I find a job and how long it takes on. When you find a job? Right. Yeah. Yeah.

So just like when I find a job and, you know, how much savings I still have left at that point. Tech companies out there, we have a great person for you to hire right here. Look into Max's information. Well, thank you so much for coming on and sharing your information with us. We've really enjoyed this chat. Please keep us posted on how your job hunt goes, how your investments go, everything else because we love hearing from our listeners. I think. Sounds good. In a moment, we give you the latest on what's really driving high food prices in this week's Money News.

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what if it doesn't hold up? That sofa was four days old. You should have ordered from Wayfair. With Wayfair, there's no what if. Just style you love and quality you can trust. Visit wayfair.ca. every style, every home. All right, let's get to our weekly Money News Roundup, where we break down the latest in the world of finance to help you be smarter with your money. Now, if you've been to the grocery store and is giving you a hard attack

at the checkout, like it has me, but I'm still here, don't worry, it's not the bacon and pancakes in your car, it's high prices. And our news colleague, Anahil Hoski, talk to an expert with some insights about what is going on at the grocery store. Here's her conversation with David Ortega,

a professor in the Department of Agricultural Food and Resource Economics at Michigan State University. David, welcome to smart running. Thanks so much, Anna. Appreciate you having me on. So take us back a few years. When you're looking at food prices over the last decade, what stands out to you the most? So when we look at a 10-year horizon when it comes to food prices, so the rate of change in prices, which is what food inflation captures, prior to the COVID-19 pandemic, was hovering around 1 or 2% year-over-year increase.

And then when we got into the COVID-19 pandemic, in particular in 2022, we saw a double-digit increase in food prices, more than an 11% increase year over year. And that was the fastest increase since the late 1970. So about 40 years. Post-2020, we saw food price inflation start to moderate, meaning that the rate of increase has come down. and it's currently hovering around 2.7% for groceries, meaning that groceries today are 2.7% higher than they were a year ago. We've moderated the rate of increase, but that doesn't mean that prices are coming down.

It just means that they're not increasing as much as they were back in 2022 when we were looking at those double-digit increases. So quite a bit of what we're seeing in food prices today can be traced back to the pandemic then. what's changed in the food system that isn't necessarily likely to reverse? The prices that we're looking at today at the grocery store, the price level captures the increases that we saw, starting with the COVID-19 pandemic. We've also seen the impacts of climate change on food prices, impacts on production, the impact of disease, like the bird flu that has really affected egg and poultry prices. also looking at the impacts of policy, like the tariffs that have impacted just about, you know, wide range of goods in the economy.

And then much more recently the impacts of the conflict in Iran, what that's done to diesel prices and how that sort of percolates down to food prices. When we're looking at prices today, those increases really factor in all of those shocks that the food system has experienced. So if you look back again, 10 years, how much more expensive? is the average grocery basket today than it was then. And are there any particular categories that really shifted in price? Maybe not even that far. Just prior to the COVID-19 pandemic. So say 2019, grocery prices are more than 30% higher today than they were back in 2019.

And if you go even further back, we're looking at even higher increases. And that's just for groceries. When we look at menu prices, which is the cost of food away from home, comparing them today to what they were prior to COVID. In some cases, we're looking at almost a 40% increase. When we look at groceries, some of the items that I've seen the highest increase include things like beef. Beef right now is almost 10% higher than it was just a year ago.

And a year ago, you know, those prices were higher than the prior year. When we look at the price of tomatoes, those are significantly more expensive today than they were just last year. Egg prices have been through a bit of a roller coaster ride. And a lot of that has to do with the impacts of the bird flu, what that's done to production. About a year and some months ago, we were looking at record high egg prices.

Now those prices have come down considerably because production has caught up. This summer, we've seen the price of lettuce actually plummet in July. A lot of that has to do with the food safety outbreak, the cyclospora outbreak, and what that did to consumer demand. So there's just a lot of variation when it comes to the individual movements of food prices. So let's talk a little bit about how people are reacting. Are higher food prices changing what Americans may consider normal grocery prices? And could that affect pricing behavior, even if inflation continues to cool?

What folks are reacting to at the grocery store is the cumulative effects of inflation. So it's really the price level. And what we're seeing is that even though food inflation has moderated, the price level is significantly higher today than it was back in 2019. And so what that's leading to are changes in shopping behavior. So consumers are trading down. If you're buying premium products, now you're looking for conventional products. We're seeing people making shorter trips to the grocery store, much more frequent trips, so less of that stocking up that we did during the COVID-19 pandemic.

Their price comparing much more, taking advantage of discounts that retailers are offering. And we're also seeing an interest in private labels or, store brands that sell at a much more affordable price points. But I think it's worth highlighting that these higher prices that consumers are facing, they impact households very differently. So households at the lower end of the income spectrum are squeezed much more, and they are really the ones that are having to make adjustments in order to keep food on the table. Now, there's another trend that I've been noticing for the last couple of years, and that that's that grocery chains are increasingly using dynamic and personal.

priceing that's based on demand and inventory and then changing those prices in real time, a lot like how airlines and ride share services work. But how widespread is this in food retail right now? And what could that mean for shoppers? So it's certainly a trend that we're seeing gaining some steam. And as you point out, you know, dynamic pricing is really the practice of changing a price based on a changing conditions. And this is nothing new.

We see this on the airline industry, but where it's starting to get a lot of attention, is sort of a subset of this type of behavior that's known as surveillance pricing, where companies may be using personal data to then target different prices to individual consumers. So looking at price discrimination at the individual level. But it's not something that's widely adopted by any means. There's been some cases that have gotten some attention, but it's not something that I would consider a widespread activity in the retail sector. Now, at this stage of the game, have we entered a permanently

higher food price environment or could prices eventually move back toward pre-pandemic trend? I mean, there's been such a massive increase since then. It's a little hard to see that. Are there any specific categories where you would expect any meaningful relief in the next year or so? In aggregate, once food prices increase, they very rarely come down. That's just not how prices behave. So if we look at the last few decades when it comes to food prices, we've only seen price decreases a couple of times and they were very short-lived. So you can think of this like a ratchet effect. Once prices tick up, they very rarely come down.

That's again on the aggregate level. At the product level, there's a lot of movement. So for example, egg prices have come down and I believe they're somewhere between 20 and 30% cheaper today than they were a year ago. We can expect to see prices remain low for eggs, I think, over the next couple of months. But there's still a lot of uncertainty with the nature of the bird flu and what's going to happen with that in the coming months. One area that's a big pain point for many consumers is beef prices. There's very little relief in sight for beef prices.

A lot of that has to do with the fact that supply remains very constrained, but there's very strong demand. We're probably looking at higher beef prices for the next few months. When it comes to produce, I think there's just going to be a lot of volatility. You know, as we saw with tomatoes and as we've seen with lettuce, overall, you know, prices tend to increase. And I think that's what we can expect, you know, on average going forward in the next few months. Now, those increases are going to be fairly moderate. So nothing like what we saw back in 2022 when we were looking at those double-digit increases. And are there any policy levers that could meaningfully bring food prices down?

are most of the forces driving prices up outside of policymakers' control? There is very little that a policymaker or an elected official can do to lower grocery prices. And that's because prices are set by market forces, so supply and demand. Now, policies can really impact the cost of food. It could make food much more expensive in the case of tariffs. They are, by definition, a tax on import. So tariffs can drive not just the price of imported food up. but also it can drive up the cost of producing food domestically that uses ingredients from abroad.

So think chocolate, tropical fruits, those things if they're tax, you know, can drive up those prices. Also, when it comes to the cost of labor and immigration enforcement, food is very energy and labor intensive to produce. And so changes in immigration policy, the immigration debate can really constrain the labor force that works in the agricultural sector and that can drive up prices. what we're seeing now is also the impacts of policy uncertainty, especially when it comes to trade policy, immigration policy, the uncertainty in and of itself can be inflationary because it makes it very difficult for companies to plan ahead. They have to come up with contingency plans,

and all of that drives up the cost of doing business. What can policymakers do to help make food much more affordable? There's a lot of buzz and discussion around the issue of a, affordability and prices are just one part of the affordability equation. We have to look at wages as well. That really should be the focus. And also the focus should be on the safety net because, again, it's low income households that are impacted the most. So policymakers and policies that help the most vulnerable Americans can go a long way to sort of helping food become much more affordable for that subset of the population. Programs like SNAP, the Supplemental Nutrition Assistance Program has been key in fighting, uh, food insecurity and making food much more affordable for low-income households. All right. David Ortega, Professor of Food Economics and Policy at Michigan State University. Thank you so much for joining us today. Anna, it's been a pleasure. Thank you for having me on.

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