Pay attention to the news and you hear that the CPI has increased by .x% for a particular month, at an annualized rate of y%. You also shop and can see that, somehow, the price of something has risen. But by how much and what does this mean in terms of reality? I thought that it would beneficial to look back at the prices for items in the PracticalDad grocery basket in 2010 and then compare them with the prices today.
What a family buys at a grocery store is more than just food, and includes items for the household and body, such as paper towels, feminine products/pads and diapers. It’s these three items that by themselves, comprise a full 20% of the basket’s dollar value and it’s these three items that have been either seen no price change or an actual drop in the past two years. This means that their presence in the basket hides the effect of price rises on other items and it’s for this reason that I began to split out the food costs earlier this year. While the full Index of 47 items rose by 8% since November 2010, the cost of the 37 food items increased by a higher 14%.
Items that are obviously related to commodities saw the greatest rises, such as bread (wheat), orange juice, coffee and cooking (canola) oil. Others saw more moderate increases but the large majority of items within the basket saw an increase of one kind or another. Following is a short recap of some of the items at random.
Item % Rise
Cans Green Beans, Peas, Corn 11
Hot dog rolls (8 ct) 18
Sugar Flakes Cereal (generic 17 oz) 19
Oatmeal (42 oz generic) 11.9
Butter (1 #, generic unsalted) 5.2
Peanut Butter (28 oz generic) 46
Coffee (13 oz generic) 36
Hot Dogs (1 # franks, generic) 6.5
Carrots (2 # bag) 28
OJ (64 oz, generic) 22.9
Why did prices rise?
- In some instances, it’s the result of simple supply such as a failed peanut crop in late 2011 and early 2012. The supply of peanuts was so constrained that some stores actually had a limit on how many jars of peanut butter could be purchased at any one time. The same occurred this Fall with apples as a poor apple crop in some parts of the country led to higher prices. The cost of a gallon of apple cider locally spiked recently to $6.99.
- In the case of certain commodities, it’s frankly related to ongoing lax easy money policies. Major investors – including large investment houses and hedge funds – look at the environment for investing and push money to assets that are tangible and will have an ongoing demand. People don’t actually have to purchase iPods or Chevy Volts, but they do have to feed themselves and their families so the money for the futures contracts flows to those items. If you recall the movie Trading Places with Dan Aykroyd and Eddie Murphy, the corollary plot pertained to the acquisition and use of inside information on the orange harvest.
- Some items see their rises because of corollary rises in other products. The cost of generic sugar flakes cereal rose higher than oatmeal or generic rice chex cereal because the sugar and wheat ingredients saw rises of greater than 10%. Canola oil saw a major spike in 2011 because crude oil’s spike led to an increased demand for biofuels; since the canola crop also goes to biofuel, the increased demand for canola led to a corresponding rise in the cost of the cooking oil. The price of a pound of ground beef (80% lean) rose 30% over the past two years and a significant spike occurred across the three surveyed grocery stores after a media brouhaha over the use of pink slime; the rationale behind the increase would be that grocery chains eliminated the additive and were forced to raise prices accordingly.
There is one thing to takeaway from this and that’s the realization that in most cases, prices aren’t going to go down once they rise. There can be circumstances that lead to price decreases, such a new supplier providing an item for a grocer, but by and large the cost of food isn’t going to magically decline once it rises.