The Producer Price Index climbed 0.3 percent after declining 1.2 percent in March. Food prices rose 1.5 percent in April, the biggest increase since January 2008.
Something is missing/not right. I realize that the plural of anecdote is not data, but food prices seem to be much higher than that. Meat and poultry prices (except pork) have been rising since last Fall.
Consumers are responding to the economic situation in their food purchases by:
- Consuming less (either by producing smaller meals or extending meals)
- Spending less (either by choosing cheaper brands or being more attuned to sale priced items)
The typical response to economic hard times is to hoard ("pantry load"), but people generally hoard shelf-stable products and comfort foods (usually higher in starch and sugar). Eventually, however, the pantry needs to be replenished, but replenished with what?
There were reports that consumers are responding to lower prices at the fast food venues, and those businesses have lowered their prices (and in some cases, their product sizes). Fast food venues have seen an increase in their bottom lines, by volume. The slight 1.5% increase has to be showing up in a much greater percentage in particular grocery categories.
From Bill Lapp (NY Times, The Drivers of Inflation, May 16, 2009):
The Bureau of Labor Statistics has reported that the producer price index rose by a modest 0.3 percent from last month, and is 3.7 percent below a year ago. However, while overall inflation at the wholesale levels remains subdued, the wholesale cost of food products continues to rise.
The P.P.I. for finished food rose by 1.0 percent during April compared with the previous month. The jump in prices was led by a 21 percent gain in egg prices. The surge in egg prices likely will reverse itself in the coming months.
Even in the middle of recession, the corn factor raises prices on everything from beef to processed food.
However the underlying strength in the wholesale price of other food products is unlikely to abate. Just as we experienced during 2007 and early 2008, increases in the price of underlying commodities (such as corn, wheat and vegetable oil) are driving wholesale costs higher.
Ultimately if this upward pressure on wholesale costs continues (as I anticipate), the higher prices will be passed on to consumers, resulting in an acceleration of consumer food inflation.
Grain costs, especially with so much of the corn crop going into the energy sector rather than the wholesale food sector, is running up meat production costs (and eventually those increases are passed on to consumers, but there is a delay in that increase).
That doesn't explain the increases in lamb prices (generally grass-fed coming from New Zealand). Retail lamb prices have tripled in the last year (as a lamb eating family this has taken quite a bite in our food budget, as well as forcing us to shift to lower cost meats and other food items to balance the increase).
From Owen Hembry (The New Zealand Herald, Record prices but flocks shrinking, May 18, 2009):
The national sheep flock is now down to levels not seen since 1950.
Rabobank's latest Agribusiness Review said farm gate lamb prices had strengthened since January, hitting levels more than 50 per cent up on last year.
Rabobank senior analyst Hayley Moynihan said prices would be enough to improve profitability but were probably not enough to encourage more investment.
The smaller flock had pushed up prices, she said.
"Our sheep flock has fallen so much because producers have got out because it's unprofitable, but they're not yet at the point where producers are going to start expanding the flock numbers again.
Pork has remained affordable, but only in comparison with other meat items (probably, but not substantiated, by the swine flu causing ignorant consumers to avoid pork, causing prices to decline).
From Derrell S. Peel (Cattle Network, Cow Calf: Beef & Cattle Markets Try To Maintain Seasonal Strength, May 22, 2009):
Total beef production is down 4.5 percent so far in 2009 compared to last year. The reasons for decreased production have changed in recent weeks. In the first quarter of the year, reduced cattle slaughter pulled beef production down despite sharply higher carcass weights. In recent weeks, slaughter has increased, as is typical of this time of year, but carcass weights have dropped to levels only slightly higher than a year ago.
Beef and lamb production is down, which has to drive up prices, but the selling price is dropping to appeal to poorer buyers, so buying is down.
Scarcity drives up prices, but less demand drives prices down, so there is a strange balancing act occuring. My hunch was that people (like my personal situation) are buying less meat/poultry, which is killing the producers, who are responding (appropriately) by producing less. The result is less, for everyone.
Our pantries will eventually need to be replenished, but prices will have to eventually rise as decreased production and profits eventually effect producers (some will fold, others will contract).
Leaner times are ahead, not unexpectedly, but hungry people do strange things.
Jack Sprat
Could eat no fat,
His wife could eat no lean;
And so,
Betwixt them both,
They licked the platter clean.- Mother Goose Nursery Rhymes
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