Thursday, October 20, 2011

Food Prices Are Still A Concern

From the last CPI release:
The food index, which rose 0.5 percent in August, increased 0.4 percent in September. The index for food at home repeated its July and August increase of 0.6 percent. The index for nonalcoholic beverages was unchanged, while the remaining major grocery store food groups all posted increases. The dairy and related products index rose the most, increasing 1.2 percent, followed by 0.9 percent increases in both the cereals and bakery products index and the fruits and vegetables index. Within the latter group, the indexes for apples and tomatoes both posted significant increases. The index for meats, poultry, fish, and eggs rose 0.4 percent as the index for eggs rose sharply, and the index for other food at home rose 0.6 percent. The food at home index has now risen 6.3 percent over the past 12 months with the dairy index up 10.2 percent over that period. After rising 0.4 percent in August, the index for food away from home increased 0.2 percent in September and has risen 2.6 percent over the last 12 months.
Let's go to the charts:

First, I use January 1, 1985 as the starting point because this is mid-way through the decade after Volcker wrung inflation out of the economy.  Secondly, overall food inflation is still moving higher at strong rates.  While the economy of the 1980s could handle current YOY levels, the economy of the early 2000s could not.  In short, this chart is pretty concerning. 

Meat, fish, poultry and eggs are increasing at strong rates, although YOY prices increased reached this point before without causing a recession.

Fruits and vegetables are also increasing, but, again, at rates the economy has withstood before.

Daily prices are also at high levels.

Food at home is increasing at strong paces.

My concern with the above numbers is these are price increases we see every day -- or at least once a week.  As such, we are aware of them in a pretty big way.  And the kinds of increases the charts are showing are enough to slow purchases of other items, thereby lowering overall aggregate demand.