Category Archives: personal finance

Absence of Discounts Confirms Tomato Soup Inflation

Campbell's Condensed Tomato Soup has long been our favorite way to visualize the effects of inflation over time in the U.S. economy. That's because the product is defined by its iconic packaging, a No. 1 size steel can that contains the same amount of condensed tomato soup as it did when the product was first introduced to the public in the late 1800s.

This relative stability in packaging however means Campbell Soup (NYSE: CPB) cannot hide the price increases is passes along to its customers through shrinkflation, which many other food producers exploit by keeping the same prices on their goods, but diminishing the amount of goods within them. When inflation drives up the costs of what they have to pay to make and transport their goods to consumers, Campbell's must increase their prices to compensate.

That's what's happening now. Campbell Soup has confirmed it is increasing prices across its product lines:

Get ready to add a few dollars to your monthly canned soup budget, because thanks to rising supply chain costs, Campbell’s is planning to raise its prices. On Wednesday, Campbell’s announced its last-quarter earnings were weaker than the company had expected. Compared to the same time period last year, profits had fallen 5% to $160 million.

“Our results were impacted by a rising inflationary environment, short-term increases in supply chain costs, and some executional pressures,” said CEO Mark Clouse....

Clouse assured investors that the company is taking steps to recover from the slump, including a new pricing strategy, which will roll out over the current quarter (which ends in early August). Across the company portfolio Campbell’s net sales decreased 14% over the last quarter, so expect this pricing strategy to affect more than just canned soup—Swanson broth, Pop Secret popcorn, Cape Cod chips, Pace salsa, Snyder’s of Hanover pretzels, V8 juice, Prego tomato sauce, SpaghettiOs, and Pepperidge Farm are all owned by Campbell’s.

Whether or not you, personally, will be paying more for these products is yet to be seen. Though retailers will be paying more for Campbell’s products, it’s ultimately up to them whether or not to absorb the higher costs, or pass them onto consumers.

The markup between wholesale and retail prices give retailers some flexibility in how they might choose to pass their increased costs along to consumers. And that is where we can show how that works, because we've tracked the prices consumers have paid for Campbell's Condensed Tomato Soup since the product rolled out onto grocery store shelves in the late 1800s.

Unit Price per Can of Campbell's Condensed Tomato Soup at Discounted Sale Pricing, January 1898 - July 2021

For products like Campbell's Condensed Tomato Soup, retailers pass along their cost increases to consumers by offering fewer and smaller discounts. This marketing strategy lets them hold their shelf prices relatively stable, but only until inflationary pressures rise enough to force retailers to increase their shelf price. Once they do, their higher markups allow them to regain the ability to offer larger discounts.

You can see that dynamic playing out in this chart as prices have periodically stepped upward in 5 to 10 cent intervals since the U.S. government ended its failed attempt to stop inflation through price controls in 1974. As prices have risen, deep discounting becomes much less common and eventually the low prices consumers were once able to pay becomes a thing of the past.

In 2021, the price of Campbell's Condensed Tomato Soup is converging near a shelf price of $1.00 per 10.75 ounce can. In July 2021, the trailing twelve month average discounted sale price is $0.95 per can, which has fallen from a seasonal peak of $0.99 per can in December 2020 thanks largely to some unique pandemic-driven supply and demand dynamics. We think we'll start seeing higher retail shelf prices in the very near future to confirm the permanence of 2021's inflation.

Shrinkflation and a New Tool to Track Price Inflation in Real Time

Consumer prices are rising rapidly these days. Just last month, we found the discounted sale price of Campbell's Condensed Tomato Soup had risen to $0.96 per can, a rise of 13% above pre-pandemic levels.

One reason we track the price of Campbell's iconic tomato soup because the product itself has proven to be remarkably stable over time. If you stepped into a time machine and traveled back to nearly any point in time from January 1898 to the present, you could likely find the same 10.75 ounce size can of condensed tomato soup stocked for sale in American grocery stores.

That makes Campbell's iconic soup unlike other products, whose producers engage in a market tactic called shrinkflation, where they keep the sale prices the same, but shrink the size of the goods they sell. If the phrase sounds familiar, it is because the topic is increasingly popping up in the news.

There are lots of reasons for companies to engage in shrinkflation, but the end result is the same. You get less stuff for the same amount of spending. Whether its toilet paper, cat food, or packages of Hershey's chocolate kisses.

Things that don't change don't have that option. Unlike these other kinds of products, they cannot get away with shrinking the amount of goods inside their packaging. Because these goods cannot get smaller, producers are forced to pass along their higher costs from the escalating prices of the things they have to buy, which consumers see as rising prices. That difference makes these goods very useful for keeping track of how inflation is affecting your personal finances.

Speaking of which, keeping track of those price changes can be a time intensive activity. When we track Campbell's tomato soup prices, we review dozens of weekly ads to identify the prices at which retailers are selling them each time we update our database of monthly price data for the product. Our price database for Campbell's tomato soup extends back to January 1898.

With prices now escalating rapidly enough to become a regularly featured news topic, we were excited to find that Microsoft has introduced a new capability into its Edge web browser, which makes it easy to track the recent price history of products like Campbell's Condensed Tomato Soup. Here's the announcement from the rollout of Microsoft Edge's price history tracking capability:

Before making a purchase, I like to make sure that I’m getting the best deal possible. Because prices on certain items fluctuate over time, knowing when to buy can make all the difference. This is why I’m excited to share that, this month, Microsoft Edge is releasing a new feature called price history.  It shows me historical online prices to help me decide if I should wait a few days before making a purchase. To see an item’s price history, all you have to do is click on the blue tag in the address bar. Learn more about which retailers are supported. This is just another way we’re helping you save time and money.

In our case, it provides a very easy way to track recent price trends for our favorite inflation-tracking product! Here are two snapshots of what we found when we looked at its price history on 28 May 2021 and again, 10 days later, on 7 June 2021.

Shopping in Microsoft Edge: Campbell's Condensed Tomato Soup Price History, Snapshots on 28 May 2021 and 7 June 2021

Recognizing that we're looking at a limited sample of just three large retailers (Amazon, Wal-Mart, and Target), it's interesting to see the historical prices that MS Edge reports over the past month generally agree with what we've documented using our well-established tracking methods.

Obviously, there are more consumer goods than just Campbell's Tomato Soup to consider in assessing how fast inflation is growing in the U.S. At this writing, Microsoft Edge's price history tool pulls its data from products sold at eight large retailers, including Amazon, Wal-Mart, Etsy, Macy's, Nordstrom, Home Depot, Target, and Best Buy.

If you have Microsoft Edge, check out its price history tracking capability out for yourself by picking out a basket of goods and watching their price changes over time. If nothing else, you might get a very good idea of how today's inflation is directly affecting you and your quality of life.


Bonus update! Campbell Soup (NYSE: CPB) is reporting its previously projected profits will be negatively impacted by rising material and transportation costs. That confirmed upward cost pressure will make it less likely for significant discounting of tomato soup prices in the next several months, even as demand declines to its seasonal low.

When Should You Take Annual Payments Instead of a Lump Sum?

$100 Banknotes by Pepi Stojanovski via Unsplash - https://unsplash.com/photos/MJSFNZ8BAXw

Imagine this scenario. You are offered the opportunity to take a one-time lump sum payout or an annual payment for the rest of your life. Which option should you choose?

That's a scenario that may play out several times during your life. Sometimes it will be an employer who offers that deal with the company's retirement plan. If you're lucky, it may be a state lottery commission.

If you're like 70% of Americans who were offered that choice for their employer's pension plan in recent years, you will likely choose the lump sum cash offer. But is that the best choice? How can you find out?

If you want to boil it down to a single number without taking other considerations into account, you could base your decision on a figure called the pension income ratio. Simply take the amount of the annual payout you have been offered and divide it by the amount of the lump sum payout you've been offered as an alternative.

Let's do that math with an example in the following tool. If you're reading this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version of it.

Cash Payout Options
Input DataValues
Lump Sum Payout
Annual Income Payout

Can You Beat This Number?
Calculated ResultsValues
Pension Income Ratio

Now, think about what kind of annual rate of return you could reliably get from investing the lump sum payout. If your result from the tool above is higher than that rate, you might be better off choosing the annual income payout over the lump sum.

Most financial planners will use a rate of return of 6.0% as the rule-of-thumb threshold for choosing which option is better, but a more conservative approach would be to use a lower figure.

For the default numbers in the tool, the result of 6.7% is higher than the 6.0% threshold, which would suggest the better option is to go with the annual income payments. Most financial planners would agree that rate of return would be difficult to average over a long period of time.

But what if the offer for the annual income payments was lower? What if it was $35,000 instead?

That figure would drop the pension income ratio down to 4.7%, where taking the lump sum would become more attractive.

There are other factors that can affect the decision of which choice is better (such as your age, health, etc.) but the idea here is to use the pension income ratio as a starting point for those additional considerations.

For more discussion, check out Michael Aloi's recent article on how a math formula drives one retiree’s choice and Wes Moss' article on the question of whether you should take a lump sum payout or a pension. And of course, our own 2015 article on whether you should take a pension buyout, which was a very topical question that year!

Image credit: Photo by Pepi Stojanovski on Unsplash

Your Paycheck in 2021

Magnus Kettner: Puzzled - Winslow Mail, 6 March 2020, via Library of Congress

Happy 2021! As we officially put 2020 behind us, it's time to look forward to puzzle out what your paycheck will look like this year after the U.S. government has bitten off a chunk from it.

We're starting with the assumption that a significant number of Americans haven't filed new W-4 tax witholding forms to take advantage of the simpler withholding rules that took effect in 2020. If that situation applies for you, our 2021 tool can accommodate your situation, but you will likely find the newer rules let you keep more of the money you earned from working. Better still, you can use our tool to test drive how your paycheck would change if you did file a new W-4 with your employer.

This year's tool is also set up to capture any big changes you may have made in your job. Is this the year that you'll crank up how much money you might invest in a pre-tax 401(k) retirement account at work? Does your employer offer health or dependent care pre-tax flexible spending accounts that you might use this year? What if you get a raise sometime during the year?

Our 2021 paycheck tool can help you find out how the answers to these questions can affect your paycheck and more! If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool. Otherwise, just start entering whatever numbers you want to consider for what your paychecks might look like in 2021.

Your Paycheck and Tax Withholding Data
CategoryInput DataValues
Basic Pay DataCurrent Annual Pay
Pay Period
Federal Withholding DataFiling Status
Have you filed a new IRS Form W-4 with your employer since 2019?
Number of Withholding Allowances (from your pre-2020 IRS Form W-4 if you haven't)
Extra Tax to Withhold per Paycheck (as requested on your IRS Form W-4)
401(k) or 403(b) ContributionsPre-Tax Contributions (%)
After Tax Contributions (%)
Flexible Spending Account Annual Contribution DataHealth Care Spending Account
Dependent Care Spending Account
What if You Had a Raise?Desired Raise (%)

Your "Typical" Paycheck Data
CategoryCalculated ResultsValues
Basic Income DataProposed Annual Salary (Including Raise!)
Typical Paycheck Amount
Federal Tax Withholding AmountsU.S. Federal Income Taxes
U.S. Social Security Taxes
U.S. Medicare Taxes
U.S. Additional "Medicare" Taxes (If Applicable)
401(k) or 403(b) ContributionsPre-Tax Contributions
After-Tax Contributions
Total Contributions
Flexible Spending Account ContributionsHealth Care Spending Account
Dependent Care Spending Account
Your Paycheck's Bottom Line
Take Home Pay EstimateBasic Net Paycheck Amount
... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck)
... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck)

Now that we've given you a sense of how much money you'll have withheld by the IRS in 2020 from each of your paychecks, we should note that there are some factors that can really complicate your withholding tax results depending upon how much you cumulatively earn during the year.

For example, in 2021, once you have earned over $142,800, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, where our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans.

There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is one of the new income taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare") that are still in effect. Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax. Since it has not ever been adjusted for inflation, that means that you could someday be subject to it through 1970s-style bracket creep, even though the tax was sold on the claim that it would be limited to very high income earners.

In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older, which increase those annual contribution limits.

Elsewhere on the Web

There are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. We really like PaycheckCity's Salary Paycheck Calculator because it allows you to determine the amount of state income tax withholding that will be taken out of your paycheck in addition to what the federal government takes out. Payroll processing giant ADP also has a salary paycheck calculator that will give you good results, but we still find the format of PaycheckCity's version to be more user friendly.

Then again, if you live in one of the seven states that have no personal income tax for wage and salary income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay.

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

Image Credit: Kettner, Magnus. "Puzzled". The Winslow Mail. (Winslow, AZ), 06 March 1925. Chronicling America: Historic American Newspapers. Lib. of Congress.

New Home Prices Rising Slightly Faster Than Median Household Income

The median sale prices of new homes sold in the U.S. has begun rising slightly faster than median household income in the last several months, indicating that new homes have become slightly less affordable than they were earlier this year.

Measured as the ratio of the trailing twelve month averages of monthly median new home sale prices and median household income, the median sale price of new homes sold in the U.S. has slowly risen from a low of 4.88 times median household income in April and May 2020 to a high of 4.95 times median household income in September and October 2020. The following chart shows the developing rising trend in the context of the available historical data for both data series since 1968. (Please click here to see a full-size version of the chart).

Ratio of Trailing Twelve Month Averages for Median New Home Sale Prices and Median Household Income, Annual: 1967 to 2019 | Monthly: December 2000 to October 2020

Our latest analysis of the trend for median household income, the denominator of the relative affordability ratio for new homes, is available here. Meanwhile, a up-to-date chart featuring the median and average sale prices of new homes sold in the U.S. from January 2000 through October 2020 confirms a rising trend for new homes following their rapid bottoming early in the period of the coronavirus recession.

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through October 2020

The references section below provides access to our sources for the raw data presented in the charts above.

References

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 25 November 2020.

U.S. Census Bureau. Income, Poverty, and Health Insurance in the United States: 2018. Current Population Survey. Annual Social and Economic Supplement (ASEC). Table H-5. Race and Hispanic Origin of Householder -- Households by Median and Mean Income. [Excel Spreadsheet]. 10 September 2019.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 25 November 2020. Accessed: 25 November 2020.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 25 November 2020. Accessed: 25 November 2020.

Sentier Research. Household Income Trends: January 2000 through December 2019. [Excel Spreadsheet with Nominal Median Household Incomes for January 2000 through January 2013 courtesy of Doug Short]. [PDF Document]. Accessed 6 February 2020. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars.]

Political Calculations. Alternate Median Household Income Estimates, January 2020, February 2020, March 2020, April 2020, May 2020, June 2020, July 2020, August 2020, September 2020, October 2020.