Practical Dad

PracticalDad Price Index:  Two Years and Counting

The PracticalDad market basket of 47 grocery store items was taken and calculated today, with two years of consistent pricing now under the belt.  There's been much speculation about what will occur to prices once the Federal Reserve's next round of Quantitative Easing - the third to date - works through the economy and while everyone has an opinion, the data from the basket shows that while the Total PracticalDad Marketbasket Index decreased by more than a full basis point to 106.42 (from 107.50), the Food-only segment of the basket rose slightly from September's 111.67 to 111.80; this is an increase in the food-only segment of 11.8% since the index's inception in November 2010.

A grocery market basket of 47 items - of which ten of those are not edible food products - is admittedly a tiny sample of the thousands of items available in the standard grocery store.  But having been the family shopper and cook for years, I believe that it's an accurate microcosm of the typical family's essential shopping list, stripped down to what a typical family trying to make ends meet would purchase.  Given the uncertainty over the monetary policy actions, especially as it pertains to food, I've begun to track the spread between the two index values with the thought that it would be, while only a datapoint, indicative of the impact of easy money upon foodstuffs.  After all, we can cut back on non-essentials such as books and trips, but our ability to cut back on basic foodstuffs is limited.  Unless of course, we plan to starve.

Month/Year               Total Index               Food-only Index               Spread

11/10                         100                          100                                   0

8/12                           106.68                     110.88                              4.20

9/12                           107.50                     111.67                              4.17

10/12                         106.42                     111.80                              5.38

One of the best comments that I've ever read about inflation in light of present monetary policy was posted by "Dryfly", a commenter on www.calculatedriskblog.com.  Several years ago, he wrote that we'll probably see deflation in what we want and inflation in what we need; declining incomes will force us to cut back on non-essential purchases while the exceptionally loose monetary policies will force prices upwards on our essentials, especially food.  The non-essential cutbacks will cause manufacturers to keep a lid on their pricing, while the food and commodity producers will be able to - within reason - pass these through to the consumer.  It might not be perfect, but I think that the spread will serve as a reasonable indicator of the effect of monetary policy upon prices, especially the essentials versus the non-essentials. 

Expect to see the spread each month as we move forward.

Comments

HCN says hi.
We miss your posts.

josap

By josap on October 15th, 2012

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