Thursday, December 15, 2011

Is Food Inflation Still an Issue?

I'm in the process of switching servers for my Quote trak machine, so the morning market won't be up for the rest of the week.  

I haven't talked about or discussed food inflation for awhile, so I wanted to take a look at this area again.  What really got me interested in this topic is the drop in the grain complex:

Corn, soybeans and wheat are all at or near six month lows.  These form the building blocks of US food prices as these materials and their by-products are used throughout the US food complex.  Let's now turn to the CPI numbers:

Overall CPI's YOY percentage change is still high at a little under 4%.  However, it did drop recently.

In addition, core inflation is still rising; it is currently above 2%.

So the biggest and most inclusive readings of inflation are still running hot on a YOY basis.  Let's look at the food data:

The overall YOY food index is still increasing, and is now just below 5%. 

A big reason for the increase is the sharp increase in meat, poultry, fish and eggs.   However,

Fruits and veggies are still increasing a little over 5% YOY -- although these prices are subject to some fairly extreme fluctuations.

Cereals and baked goods are still rising and are now over 5% YOY.  Finally,

daily prices are also rising --  but have been through two similar spikes over the last 10 years.

While grain prices have been dropping (thanks to a risk aversion trade, bumper crops increased international supply competition, food inflation here in the US is still an issue to be concerned about.  In addition, overall inflation (both core and total) is at uncomfortable levels as well.