Friday, April 15, 2011

Producer Price Food Inflation: Crude (High and Volatile) vs. Consumer Goods (Low and Stable)

The chart above shows the annual inflation rates for: a) crude foodstuffs and feedstuffs (e.g. wheat, corn, animals for slaughter, peanuts, cottonseed, and soybeans), and b) finished consumer foods (pasta products, processed meats, bakery products, fresh fruits and vegetables, tree nuts, and eggs), based on yesterday's BLS report on Producer Price Indexes through March.  I featured a similar chart back in February and it got a lot of attention and comments, so this is an update.

It's interesting to note the following:

1. Inflation for crude foodstuffs and feedstuffs is much more volatile (monthly standard deviation of almost 14% over the last ten years) than inflation for finished consumer foods (standard deviation of 3%). 

2. Double-digit inflation (0r deflation) rates in crude food items (like we've had for the last 9 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products. 

3. The current 12-month inflation rate of 4.4% through March for finished consumer foods is only slightly higher than the 3% average over the last ten years (see red line above), and is lower than finished consumer food inflation last March of 6.6%

4. The average inflation rate for finished consumer foods over the last 12 months of 4.3% is lower than the 6.6% average during 2007 and the 6.8% average in 2008.   

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, and food inflation of less than 3% in the U.S. through March (2.9%), which is just slightly above the average over the last decade of 2.7%.


At 4/15/2011 4:01 PM, Blogger Rufus II said...

As a general rule, there's more cost in the plastic wrapper than in the wheat inside a loaf of bread.

A fourteen ounce box of corn flakes will have around a dime's worth of corn.

The cost of the high fructose corn syrup in a 2 liter bottle of Coca Cola has gone from a couple of pennies to a little less than a nickel.

There's a lot of demagoguing, and hyperbolating that goes on with regard to food prices.

The farmer, overall, gets about 19% of your food dollar. The biggest cost, by far, is the labor in the "processing."

At 4/15/2011 4:19 PM, Blogger Buddy R Pacifico said...

How do some packaged food sellers cope with crude food inflation? The packaging is shrunk.

At 4/15/2011 4:22 PM, Blogger juandos said...

Interestingly this AP story dated Published March 16, 2011 notes that Food prices at the wholesale level rose last month by the most in 36 years...

At 4/15/2011 4:46 PM, Blogger Benjamin Cole said...

The Inflation Sky is Falling !!! The Inflation Sky is Falling!!!

Jeez, louise, what has happened to our punditry class?

Coming out of a recession, we are supposed to worry about inflation in low single-digits? I am deeply unworried about inflation.

Many right-wingers and left-wingers have concluded the current CPI actually overstates inflation by about one percent.

I suspect a lot of this whimpering is just anti-Obama-ism. You have guys who praised QE2 in Japan--such as John Taylor--now saying how terrible QE2 is.

I am a fan of Paul Ryan (though he probably doesn't have the guts for cuts, and his budget plan was Swiss cheese) but still, inflation is what it is.

Dead, like Jimmy Hoffa.

At 4/15/2011 5:07 PM, Blogger morganovich said...

it's amazing how you can make a price series stable by adjusting the data until it ignores the movement of prices.

a quick look at the housing component of CPI from 2000-7 provides an excellent example.

At 4/15/2011 6:50 PM, Blogger aorod said...

It will all crash when the Fed raises rates.....

At 4/19/2011 3:52 PM, Blogger VangelV said...

As a general rule, there's more cost in the plastic wrapper than in the wheat inside a loaf of bread.

I don't believe that. The last time I looked I could buy 5,000 square feet of plastic wrap for less than $35. That is enough to wrap more than two thousand loaves of bread, which require a lot more than $35 worth of wheat.


Post a Comment

<< Home