Following pandemic-driven deflation, Alaska inflation rises at rate not seen in decades

Inflation in Alaska over the last 12 months surged to levels not seen in three decades, with prices of gasoline, used cars and clothing helping drive the trend.

But Alaska economists say the spike is not necessarily a surprise after a historic period of deflation in 2020, as the COVID-19 pandemic restricted travel, closed businesses and reduced spending.

They believe other causes of the higher prices should eventually ease, like pandemic-related supply shocks and pent-up consumer demand.

“To me, the conversation about inflation needs to be contextualized,” said Mouhcine Guettabi with the Institute of Social and Economic Research at the University of Alaska Anchorage. “We are coming out of a pandemic, where prices and consumer spending were incredibly low.”

Consumer prices rose by 6.2% in urban Alaska, the highest increase since 1990, said Neal Fried, an economist with the Alaska Department of Labor and Workforce Development.

Gasoline prices jumped by 42%, the most since at least 1979, the last year of available data, he said.

A gallon of regular gasoline hit $3.65 in Alaska on Friday, up from $2.52 a year ago, according to the American Automobile Association.

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The recent price is not high above the long-term average for gas, Fried said. Gasoline prices are rebounding after dropping last year amid reduced demand.

Fuel prices have risen steadily this year, said Kathy Stingley, owner of Alaska Auto Transport in Anchorage. Maritime shipping companies have increased their fuel surcharges, adding about $75 to the roughly $1,800 cost of shipping a car to Alaska from the Lower 48.

“It’s kind of a necessary evil,” she said.

Stingley said she’s absorbing that cost rather than passing it onto customers. She said she can do that because her sales volume has risen. More individuals are moving cars across the ocean, after the pandemic-related closure of the Canadian border restricted overland traffic.

Jimmy Doyle with Weaver Bros. trucking company in Anchorage said he hopes the cost of diesel fuel stabilizes. He has had to pass the cost increases onto customers. More fuel surcharges could force customers to rethink their shipping plans, he said.

Other notable price increases over the past year through June include used cars and trucks, up 47% thanks partly to a pandemic-related slowdown in car manufacturing and consumers with more savings, Fried said. That’s likely the biggest jump in used car prices ever, he said.

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Apparel was up 5.7%, the biggest increase since 2008. It follows plunging demand for new clothes last year as more people stayed home from work and gatherings, Fried said.

Also, lumber costs spiked earlier this year, but have been dropping, Fried said. The higher prices pushed up housing construction costs, but that affected only a small number of Alaskans looking for a new home, Fried said.

Fried said food prices — which do affect everyone — did not rise by a large amount, increasing 2.4%. Meat and cereal did rise more than other items.

“It’s not that big, but it’s one thing people notice because we use a lot of it,” Fried said. “Psychologically, we put more weight on things we notice, like gas prices on big billboards.”

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Economists generally said they expect the high inflation rate to be temporary, easing as the U.S. economic recovery continues.

“I’m not overly worried about (inflation), but it’s something to keep an eye on,” said Nolan Klouda, head of the University of Alaska Center for Economic Development. “We don’t want to see these things get worse.”

Fried said said it’s hard to predict what will happen amid a continuing pandemic that has disrupted manufacturing, supply chains and the labor supply.

“It’s hard for me to believe it’s just a one-year aberration,” he said. “It’s been easy to predict inflation for a long time because it hasn’t changed much. If you said 2.5% for last 20 years you were pretty good. Right now, you can’t do that.”

The higher prices in Alaska bring at least one silver lining. If the price of North Slope crude oil remains around current levels through June, annual state income would jump about $500 million above the spring budget forecast.