"The genie's out of the bottle when it comes to food inflation," said Michael Swanson, an agricultural economist at Wells Fargo & Co.
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Corn prices over the past year have reached near-record highs thanks to growing production of ethanol, which is made from the grain, as well as rising demand. Corn futures closed at $3.29 a bushel yesterday on the Chicago Board of Trade, up from about $2.89 a bushel last year.
Prices have softened some because of this year's bumper crop. U.S. farmers are in the process of harvesting 13.1 billion bushels of corn, up 24% since last year and the largest crop since 1933, says the Agriculture Department. But it's unlikely that the crop will send prices down to levels seen a year ago.
The higher grain costs have trickled down throughout production lines. Mr. Bond cited the price of corn, the predominant feed for cattle, as a problem for Tyson's beef business. Prices for live fed cattle averaged about $93 per hundred-weight through August, versus about $85 last year, said Kevin Good, senior analyst at Cattle-Fax, a cattle marketing information firm based in Englewood, Colo.
Consumers can expect to pay as high as 4.5% more for groceries and restaurant meals this year over last, according to the Agriculture Department. That means shoppers who spent $100 on groceries during an average shopping trip last year can expect to pay as much as $104.50 this year for the same groceries.
But remember -- all that matters is core inflation.
3 comments:
Core inflation is used as a proxy for the full inflation number because it is a good predictor of the future direction of the full inflation number. It should not be used as a measure of what the actual level of inflation is for the average person.
It's a way of eliminating "noise" from the model.
The problem is that the news media quote core inflation as proof of whatever view the article is trying to make. This is then picked up by political ideologues as well.
It's like the difference between weather and climate. One cannot use the daily variations in the weather to predict long term climate changes.
This is all part of the politicization of all economic data. This situation is made worse by the existence of lots of "economists" (real and self proclaimed) who are ideologues. A perfect example is the entire economics department at George Mason University. The department was set up, staffed and funded by libertarian billionaire Charles Koch. So, naturally, most of their "research" supports libertarian claims.
People fail to realize the effect that a small number of super wealthy individuals have had on the intellectual discourse in this country. Names like Coors, Scaife, Olin and Koch just keep coming up again and again - Heritage, Cato, Hoover, etc. They are all funded by the same group.
You can see the details at both the sourcewatch.org and mediatransparency.org web sites.
The problem with the core/total debate is simple. It makes perfect sense when commodity prices spike because of things like the growing season or weather problems that cause a temporary spike.
When there is a prolonged period of commodity price increases -- like say two years -- then commodity prices aren't reverting back to a mean but are instead increasing. That's why I think the core rate issue is garbage in the current environment.
If you mean that it doesn't reflect current price increases then no one disputes that. If, on the other hand, you mean that it doesn't work properly in the inflation forecasting models that use it as input then you will have to provide examples.
Presumably leaving out certain components is supposed to be accounted for by their knock-on effect. If, say, grains go up, then perhaps restaurant meals go up as a result. Then if restaurant meals are in the model the effect is accounted for. (I don't know if restaurant meals, actually are in the model, it's only an example.)
As I said, anyone using the core rate for any purpose other than input to the model is probably misusing the data for political ends.
Perhaps we should be more concerned with the dropping of the M3 statistics, something that was reflective of economic conditions.
It's one thing to keep the public in the dark about what's really going on, but I can't understand why the financial community would put up with inaccurate or incomplete data, especially these days with everything depending upon complex models.
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