Wednesday, February 09, 2011

The "Time Cost" of Food Has Fallen Since 2008

Time Cost (in Minutes), Selected Food Items

Although this is not a complete analysis, the chart above (click to enlarge) provides some additional evidence that there is not a lot of food inflation right now in the U.S.  In the post below, there are a lot of comments that are critical of the way the BLS calculates inflation, with some general consensus that the BLS and CPI massively "under-report inflation." 

So here's an alternative approach to measuring food inflation by calculating the "time cost" of food, using:  a) actual retail food prices ("Average Price Data" U.S. city average) in December 2008, December 2009, and December 2010, and b) the average hourly earnings in those same months for "Total Private Industries."  

For example, in December 2008, the food item "Ground chuck, 100% beef" had an average retail price of $3.00 per pound, and the average hourly wage in that month was $18.39 (or 30.65 cents per minute), which would mean that the average worker in December 2008 would have spent 9.78 minutes working at the average wage to earn enough income (disregarding taxes) to purchase one pound of ground beef.  In December 2009, the "time cost" of ground beef would have been 9 minutes, and in December 2010 the "time cost" of hamburger was 9.14 minutes (see chart above).  Therefore, in the two-year period between December 2008 and December 2010, the "time cost" of hamburger fell by 6.54%, and in the one-year period between December 2009 and December 2010, the "time cost" of hamburger rose by 1.56%.  

The chart above shows comparable "time cost" calculations for the food items in the BLS list of average price data for its "Top Picks," and this measure of food inflation should avoid some of the dueling criticisms of the CPI measure of food inflation (upward bias vs. downward bias) by using two nominal measures (retail prices and wages) to calculate the cost of food in what's ultimately most important: the amount of time spent working to earn the income needed to buy food at retail prices. 

Although the list is not exhaustive (and I'll provide a more comprehensive list later), the initial results of these items confirm my previous report that there does not appear to be a lot of food inflation in the U.S. right now.  Especially compared to food prices two years ago, there's no question that the "time cost" of all of these food items fell between December 2008 and December 2010, on average by 5.54%.  Over the last year (December 2009 to December 2010), the changes in the "time cost" of these food items has been mixed: the "time cost" of bread, chicken, eggs, orange juice concentrate, and tomatoes has fallen, while the "time cost" of hamburger, milk, apples, oranges and bananas has risen

I'm working on a more comprehensive list of the "time cost" of food items and will post when it's complete. 

37 Comments:

At 2/09/2011 6:57 PM, Blogger morganovich said...

or, it just shows that productivity (and wages) of other workers has risen more quickly than agricultural prices.

i don't think this demonstrates anything like what you claim it does.

affordability is not the same as inflation. if the price of the car i buy goes up 5% and my salary goes up 10%, sure, the car is more affordable, but that does not mean its price did not inflate, merely that my salary increased more.

the buying power of my savings still diminished in car terms.

getting a 5% raise and seeing 5% inflation is not the same as zero inflation.

this whole metric seems flawed to me for that reason.

further, aren't you using the CPI data for your calculation? your link makes it seem so, but is insufficiently specific for me to see what you used.

 
At 2/09/2011 8:01 PM, Blogger aorod said...

Producer prices may be down, but everything else in the supply chain is going up...minimum wages, taxes, energy, regulation, union demands... at the same time consumer disposable income is declining due to unemployment, rising health care and education costs. And the government continues to subsidize small inefficient producers. Something has to give. Retailers are cutting help or closing up. Expect some big grocery stores to go under.

 
At 2/09/2011 9:32 PM, Blogger Buddy R Pacifico said...

If, after QE2 there is no food inflation, then the U.S. is the most open economy in the world. Most of the world has to much money chasing to little food (=inflation). Those that criticize the U.S. for sometime trade sanctions, may have to grudingly admit that other markets need work, because the American market sets the standard.

 
At 2/10/2011 1:50 AM, Blogger OBloodyHell said...

> but that does not mean its price did not inflate, merely that my salary increased more.

Uh, DUH?

His point is the one you're blowing off entirely -- the actual amount of time AT YOUR JOB you need to spend in order to actually EARN the item in question has fallen.

And THAT number -- how much you have to work to earn something you want or need -- is the actual ONE THAT MATTERS.

So f'ing what if a steak dinner cost 5 cents in 1910 and costs $15 now? If you had to work for three days in 1910 to get 5 cents, and you only have to work for 3 hrs now, IT COSTS YOU LESS OF WHAT MATTERS IN LIFE, which is, in truth and at the heart of it -- the only thing you actually truly have to trade.

No, IF there is a flaw or issue here it is that the figures utterly fail to account for either direct expenses subtracted before you get paid (producer taxes), indirect expenses subtracted after you get paid (consumer taxes), or for hidden expenses -- all that new money you owe on credit this year, thanks, in particular, to The Big 0.

That's one massive buttload of unconsidered expenses, ALL OF WHICH are substantially on the rise.

 
At 2/10/2011 4:40 AM, Blogger juandos said...

I find this posting a bit amusing though I'm not arguing its validity...

Personally I'm finding just the opposite is happening to some small degree...

I'll give you a few examples:

1) a gallon of milk cost me a quarter hour's worth of 'net pay' this year when in 2009 it used to cost me between eight and ten minutes of 'net pay'...

2) a loaf of bread now costs me about 11 minutes of 'net pay' whereas it used to cost me just six cents in 2009...

3) a pound of chuck grade hamburger now costs me about 17 minutes of 'net pay' whereas in 2009 it cost me a bit less than 10 minutes worth...

I wonder if living in different parts of the country will give very different results?

 
At 2/10/2011 8:24 AM, Blogger Eric said...

Or if you happen to buy food in all months of the year - not just December.

 
At 2/10/2011 9:00 AM, Blogger morganovich said...

buddy-

"If, after QE2 there is no food inflation, then the U.S. is the most open economy in the world. "

how do you figure this? the inflation on our imported food was 13.1% last year. if we were open, it would be driving food inflation up.

 
At 2/10/2011 9:27 AM, Blogger morganovich said...

o bloody-

um, no. go back and read what i wrote as you clearly did not understand it.

my point is that affordability is not the same as inflation.

sure, you may be better off if you have that job, but perhaps not.

consider:

you earn 100k. you get a 10% raise. prices rise 5%. sure, you seem better off.

if you spent all your money before, you could now buy the same stuff and have $5 left.

but: what if you have savings? contrary to your strident boldfaced claims, that is another thing you have to trade.

let's say you have $100k in the bank. that 100K loses 5% of it's value. now, you are not better off, you have stood still in terms of your overall buying power. if you savings is > 100k, then you actually lost buying power. (yes, i realize that interest rates etc matter here, but given current rates on money markets, you're lucky to cover fees, so it seems simpler to leave it out and even if real rates were positive (and they are not) it's still a loss in buying power your should have had so the point holds)

this is why i think mark's metric is meaningless.

it's only looking at one part of the equation.

try selling this idea to someone on a fixed income like social security.

to them a divergence in reported CPI and actual prices is a VERY big deal. if the CPI methodology had not been changes, current SS payments would be more than 3 times those being paid. that's an enormous difference.

perhaps before opining such poorly thought out ideas in such crass fashion you ought to make more of an effort to understand the issue and what others are talking about.

you completely missed the point of my comment and then go on to rudely accuse me of not getting it?

get a grip OBH. i'm happy to debate anyone's ideas in a civil and reasoned fashion, but i have little interest in dealing with the crass particularly those who do not even bother to read the comments they critique.

you need to raise your game if you expect to be taken seriously.

 
At 2/10/2011 10:04 AM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

 
At 2/10/2011 10:06 AM, Blogger Buddy R Pacifico said...

morganovich, re: open food market and how I figure;

The U.S. markets of corn, wheat, rice etc. have been stockpiled at when prices were lower. Yes, the reckoning is coming as stockpiles dwindle BUT food price inflation will be much lower(than most countries) because of true market efficincies in ag and ag markets.

 
At 2/10/2011 10:37 AM, Blogger morganovich said...

buddy-

1. that would imply closed rather than open. open means we trade a great deal abroad. your stockpile scenario implies the opposite.

2. cost of production has very little to do with it. if you were sitting on a pile of corn, why would you accept less than market price no matter how low you costs were? you'd be shooting yourself in the foot.

why sell to am american at $3 a bushel when a foreigner will pay $4?

peak has tried to make this same "our costs are lower" argument, but in a global market for food with very widespread pricing data, our costs don't matter. the global price is the global price.

 
At 2/10/2011 10:45 AM, Blogger Buddy R Pacifico said...

morganovich,

"1. that would imply closed rather than open. open means we trade a great deal abroad. your stockpile scenario implies the opposite."

No, stockpiles by producers of food products in the U.S. for commodities such as wheat for cereals. I should have stated stockpiles in the U.S. for future production in my previous post.

 
At 2/10/2011 11:00 AM, Blogger PeakTrader said...

Morganovich, if it were that simple, countries with droughts would be importing water (e.g. from countries with floods).

That doesn't fully explain why gasoline is cheaper in oil abundant countries or why food is cheaper in the U.S.

 
At 2/10/2011 12:49 PM, Blogger morganovich said...

buddy-

"No, stockpiles by producers of food products in the U.S. for commodities such as wheat for cereals. I should have stated stockpiles in the U.S. for future production in my previous post."

i understood what you meant, but that still implies a "closed" economy.

when you produce stockpile, and consume your own goods, that is a closed system, not an open one.

in an open system, you produce computers and trade them for corn.

i think we are having a semantic issue here.

i am using the economic definition of open:

http://en.wikipedia.org/wiki/Open_economy

 
At 2/10/2011 12:56 PM, Blogger morganovich said...

peak-

gasoline is cheaper in oil abundant countries primarily due to subsidies.

the saudis and egyptians etc take oil from the state producers, refine it, and then sell it for below market rates as a subsidy for their people.

that's why it's cheaper.

gasoline costs $2.97/gal in texas but 2.95 in south carolina and 2.90 in wyoming.

alaska, with it's huge oil reserves has some of the most expensive gas in the US at 3.59.

you are mistaking subsidies for regional pricing differences.

there are no such subsidies or trade restrictions in the US that would cause an analogous situation.

you have never answered my question about why we would be importing food that inflates at 13.1% when our own seems so much cheaper.

that seems like a foolish policy if what you say about our own food is true.

 
At 2/10/2011 1:32 PM, Blogger PeakTrader said...

Morganovich: "you have never answered my question about why we would be importing food that inflates at 13.1% when our own seems so much cheaper."

It seems, U.S. food imports contribute to disinflation:

Government overlooks imports in tackling inflation
China Daily
2010-12-31

"The US is typically a market that relies quite heavily on imports to supply its consumers. Sourcing most of its goods from around the world allows consumers from the world's largest economy to enjoy inexpensive products, a lot of which are from China.

For example, the US imports more than 10 percent of its food consumed every year, although the country is an agricultural powerhouse. China imports less than 5 percent of its food consumed every year.

Its high food imports is part of the reason why inflation in the US is low."

 
At 2/10/2011 1:44 PM, Blogger morganovich said...

peak-

"It seems, U.S. food imports contribute to disinflation:"

that is utter nonsense and even the BLS says so.

i already showed you this link, but perhaps you did not read it.

http://www.bls.gov/news.release/ximpim.t01.htm

line 4.

foods feeds and beverages:

dec 2009-dec 2010 change:

13.1%

line 5:

Agricultural foods, feeds & beverages, excluding distilled beverages:

dec 2009-dec 2010 change:

13.4%.

go look at the data yourself.

with imports = > 10% of US food consumption, the math becomes very clear.

just the effect of our imports would drive US food inflation up more than the reported food CPI.

so again, why would we import food that is so much more expensive if our own were so cheap and showing deflation?

there is simply no rational reason to do it.

china daily would appear to have no idea what it is talking about.

 
At 2/10/2011 2:21 PM, Blogger PeakTrader said...

Morganovich, U.S. export prices in that category increased faster (15.7%) than import prices (13.4%).

So, it was a relative gain for the U.S.

 
At 2/10/2011 2:49 PM, Blogger PeakTrader said...

Also, I may add, although commodity food prices are way up, not much of the higher prices have been passed on to U.S. consumers:

General Mills Signals Faster U.S. Food Inflation
Oct 21, 2010

"...retail prices for food are lower than they were in May though the cost of farm commodities has soared.

General Mills will raise cereal prices on Nov. 15.

The increase will affect about 25 percent of its cereal production and amount to a “low single-digit” percentage, Kirstie Foster, a company spokeswoman.

Prices for some baking mixes are set for “a mid single-digit increase,” effective Jan. 3, Foster wrote.

The UBS Bloomberg Constant Maturity Commodity Index for farm products jumped 50 percent between June 7 and yesterday."

 
At 2/10/2011 4:01 PM, Blogger morganovich said...

peak-

"Morganovich, U.S. export prices in that category increased faster (15.7%) than import prices (13.4%)."

you just completely disproved your own argument about overall US food prices and the purported advantages of the US as a cheap producer.

so food we exported went up in price 15.7%, food we imported went up 13.4%, and you are claiming that somehow, magically, the rest of the US food did not go up in price?

how could that be even remotely possible?

come on peak, this is getting ridiculous. you just used a 15%+ inflation number for domestic production as part of an argument that there is no food inflation.

 
At 2/10/2011 7:07 PM, Blogger PeakTrader said...

Morganovich, you continue to confuse commodity prices with retail prices, in part, because you continue to ignore U.S. efficiencies and competitive advantages.

If you can exchange goods at 15.7% higher prices for goods at 13.4% higher prices, then it may beneficial to increase trade.

 
At 2/10/2011 7:33 PM, Blogger Ron H. said...

"If you can exchange goods at 15.7% higher prices for goods at 13.4% higher prices, then it may beneficial to increase trade."

Peak, higher than what?

 
At 2/10/2011 7:45 PM, Blogger PeakTrader said...

Ron, the category:

"Agricultural foods, feeds & beverages, excluding distilled beverages."

 
At 2/10/2011 7:48 PM, Blogger PeakTrader said...

Perhaps, the U.S. is exchanging a $5 box of Kelloggs cereal for a $6 sack of rice.

 
At 2/10/2011 8:07 PM, Blogger PeakTrader said...

To be more specific, it may be a $5 box of Rice Krispies cardboard, I mean cereal, in exchange for a $6 sack of rice.

 
At 2/10/2011 8:34 PM, Blogger morganovich said...

peak-

"Morganovich, you continue to confuse commodity prices with retail prices, in part, because you continue to ignore U.S. efficiencies and competitive advantages.

If you can exchange goods at 15.7% higher prices for goods at 13.4% higher prices, then it may beneficial to increase trade."

no i am not. much of what we export is not a commodity but finished product. you are just making that up.

we export cornflakes as well as corn.

further, your math about exports and imports does not hold. you cannot reduce inflation by exporting. it reduces domestic supply. that drives prices UP not down. the only way your argument holds is if we are replacing domestic production that went up by even more that what we imported, so to support your argument, you have to first concede that US prices were going up more than 13.4%, so again, you have demolished your own argument.

i really cannot understand how it is you can think that we import 13.4% inflation and have exports inflating at 15%+ and yet our consumption is up less than 10% of that.

just our imports alone would cause more inflation than we are reporting and if the costs of our exports are up over 15%, there is no way that domestic food prices are dropping.

the whole rest of the world is seeing dramatic food inflation, but you believe that we are somehow immune to global prices.

we aren't. we're just using a broken CPI calculation.

why is the US magic? if our prices are so low, why are our exports prices up so dramatically? you argument is completely internally inconsistent.

and if your finished good vs commodities argument were true, then we'd see declining gross margins at finished food producers, the opposite of what is happening.

 
At 2/10/2011 8:44 PM, Blogger morganovich said...

"If you can exchange goods at 15.7% higher prices for goods at 13.4% higher prices, then it may beneficial to increase trade."

beneficial to increase trade sure, but massively inflationary even so.

your best case in such a scenario is 13.4% inflation.

we also import predominantly finished products like cheese and chocolate and coffee. 85% of our imports are "consumer ready", so again, you are just making up facts.

http://paul.kedrosky.com/archives/2009/08/us_food_imports.html

we don't trade rice crispies for rice, we buy finished products and mostly grow our own rice.

so much for your "it's commodities" argument...

 
At 2/10/2011 11:52 PM, Blogger David Gallion said...

Of course, no one who does any food shopping has any reason to believe food prices have gone anywhere but up. Nice chart though!

 
At 2/11/2011 3:25 AM, Blogger PeakTrader said...

Morganovich, the article above states:

"...retail prices for food are lower than they were in May though the cost of farm commodities has soared."

If 90% of food prices fall 1% and 10% rises 13.4%, then inflation is roughly zero.

Also, if you're exporting at 15.7% higher prices and importing at 13.4% higher prices, "terms-of-trade" improves:

"Terms-of-trade is the ratio between export prices to import prices. If you get more for what you sell and pay less for what you buy, your terms of trade improve.

Historically, developing countries were considered to be at a disadvantage regarding terms of trade. This is because exports are more often raw goods or commodities with lower prices than the manufactured goods imported from more developed counties.

 
At 2/11/2011 9:39 AM, Blogger morganovich said...

peak-

so tell me:

if corn flakes go up in price 15% and milk goes up in price 13%, how do you get deflation by selling corn flakes and buying milk?

that is NOT deflation. it's massive inflation. your terms of trade argument doesn't make any sense.

you are making the same mistake that dr perry makes. a 10% raise and a 10%$ increase in prices is NOT zero inflation.

go back and read my comment from 2/10 9.27AM.

further, you are still ignoring the elephant in the room:

how is it that the prices of the goods we produce and export go up 15% but the price of the exact same goods that we produce and consume at home are not?

no more of this "it's commodities vs finished goods" argument, i have already shown you that it is clearly not true.

and i believe it was buddy (please forgive me if i am misremembering) who made an argument about stockpiles, but that is both implausible (as why would you sell below market just because you stockpiled) and demonstrably untrue.

"Corn futures /quotes/comstock/21b!f1:c\h11 (CH11 696.75, -1.75, -0.25%) have nearly doubled from a low around $3.60 per bushel in late June to about $7 in Chicago.

U.S. corn stocks at the end of the 2010-2011 marketing year will be at 675 million bushels, down 70 million bushels from last month’s estimate, according to the report from the USDA. That’s equivalent to a decline of 1.8 million metric tons to ending stocks of 17.1 million metric tons, according to Ned Schmidt, editor of the Agri-Food Value View Report.

For the U.S., that cuts the stocks-to-use ratio to 5% — the same level seen in the 1995 to 1996 marketing year, which was the last time ending stocks fell to multi-year lows, the USDA said."

so seriously, how do the same exact goods that we produce go up in price 15%+ when we export them, but drop in price here in the US?

there is simply NO WAY that is possible.

 
At 2/11/2011 10:19 AM, Blogger VangelV said...

or, it just shows that productivity (and wages) of other workers has risen more quickly than agricultural prices.

i don't think this demonstrates anything like what you claim it does...


Mark is a naive optimist who will try to create a positive narrative no matter what reality confronts him. Do you really think that all those people who are on fixed incomes or got laid off are finding it easier to afford the same quality food as before?

I imagine that if you want the price to go down all you have to do is to start sampling more discount stores and you will magically find evidence to support the conclusion that you want to reach. A better approach would be to look at the futures markets and see what has happened and what future prices are signalling. But that is too inconvenient so the charade continues.

 
At 2/11/2011 10:25 AM, Blogger VangelV said...

If, after QE2 there is no food inflation, then the U.S. is the most open economy in the world. Most of the world has to much money chasing to little food (=inflation). Those that criticize the U.S. for sometime trade sanctions, may have to grudingly admit that other markets need work, because the American market sets the standard.

If there really were no food inflation than you might be right.

But increased subsidies for farmers are inflation. And there is not an open market in the US. Duties and taxes are still causing Americans to pay more than they should. My favourite indicator is this one. It shows us that there has been inflation so you better be prepared. If gold declines in price then we would have to conclude that Mark has a point. But if it goes up another 15% or so this year you will know that his argument is groundless, no matter what statistical tricks are used to support his argument.

 
At 2/11/2011 12:07 PM, Blogger Jet Beagle said...

David Gallion: "Of course, no one who does any food shopping has any reason to believe food prices have gone anywhere but up."

David, I do shop for food. I do not believe most food prices have risen more than 2 or 3 percent in the past year. The data on retail prices collected by the BLS supports my observations.

When I do notice an item rising significantly, I tend to find a less expensive substitute.

I also eat out quite a bit. I definitely have not noticed an increase in my meal prices ... in the last year. In fact, I have noticed restaurant chains reducing prices through promotions.

Incidentally, I think that promotions for all consumer goods are an important factor in keeping price increases down. Those who have not taken advantage of such promotions likely observe higher inflation than those of us who do.

 
At 2/11/2011 1:22 PM, Blogger Walt G. said...

I think this is an excellent way to measure prices on an individual level, too. It's a method I use to decide how badly I really want to purchase an item or of I am willing to pay someone else for something that I can do myself.

A $100 item takes on a new meaning when I think that I have to work roughly 5 hours to clear that much money. I'm also in a position to work more hours than I personally have available to sell an employer or fulfill a contract, so I would not consider paying someone $20-per-hour a waste of money to do a job I hate.

It's easier to make good money decisions when you use relevant information such as a "Time Cost" measurement.

 
At 2/11/2011 2:03 PM, Blogger morganovich said...

vangel-

it amazes me that somehow the BLS has the whole country syched to this same impossible narrative that sure, input prices have doubled but consumer prices are stable and worryingly close to deflationary all while profit margins are expanding.

if p = price to consumers and i = price of inputs then p-i=m where m is gross margin.

you cannot simultaneously raise i and m without p going up. that is a mathematical fact, yet we have folks all over this board claiming just that.

it's a miracle.

not since the loaves and fishes or the Hanuka candles have we seen such largess...

frankly, i am astounded the people trust the BLS. their data is about as credible as the IPCC and quite possibly more manipulated. to pretend that they have not become utterly politically compromised is, as you say, utterly naive.

 
At 2/11/2011 5:07 PM, Blogger PeakTrader said...

Morganovich:

"peak-

so tell me:

if corn flakes go up in price 15% and milk goes up in price 13%, how do you get deflation by selling corn flakes and buying milk?"

You improve your standard of living by giving up less corn flakes (exporting) for more milk (importing).

It's similar to giving up fewer dollars for more milk.

 
At 2/11/2011 5:45 PM, Blogger PeakTrader said...

Also, I may add:

Food Inflation Isn't in Every Grocery Aisle
February 10, 2011

"In the United States for instance, dairy prices in December 2010 rose by 0.4% over the previous month and were 3.7% above levels seen during the same period last year.

And in the U.S., major grocers such as Wal-Mart and Kroger have continued to push milk prices lower even as the commodity has risen in order to remain competitive. Retail milk prices fell by 7% from January 2009 through November 2010."

 

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