Practical Dad

PracticalDad Price Index - April 2014:  Wishing It Was April Fools Day

The pricing for the 47 item PracticalDad Price Index grocery basket took place on April 1 and when I calculated the results, I could only wish that it was actually an April Fool's experience but alas, it's not. The Total Index rose by a full .87 points, from March's 109.41 to 110.28 in April (November 2010 = 100).  This was powered by the rise in the 37 item food-item portion of the basket, which suffered a one month gain of 1.53 points - equivalent to a single month rise of greater than 1.5% - from March's 112.06 to April's 113.59 (again, November 2010 = 100).  For our purposes, the cost of a 47 item grocery basket has risen 10.28% since the Index's inception in November, 2010.  For a list of the items that have been monitored monthly since November 2010, see here.  When you remove the 10 non-food related items such as aluminum foil and bath soap, the remaining 37 items have risen by 13.59% from November 2010.

Note that the Food-Only Index is still below that Index high reached in December 2012, when it reached it's high of 114.33.  The Total Index, which also comprises the ten non-food items, is continuing to set new highs as time moves forward; but now the food is again the driver. 

I was curious as to the results given the late March news that the Commodities Research Bureau Foodstuffs Index has risen 19% since December, 2013. This was especially since the movement of the PracticalDad Food-only Index in the past several months has been downwards and I've seen multiple food items actually drop in price over that same time frame.  So if the CRB Foodstuff Index is rising while the grocery basket index is flat or declining, what does that mean?  It's helpful to understand what each index is and what each measures.  The CRB Index has been around for decades and measures 10 agricultural commodities only: 

  • hogs
  • steers
  • lard
  • butter
  • soybean oil
  • cocoa
  • corn
  • Kansas City wheat
  • Minneapolis wheat
  • sugar

These items are input items into the food system, used frequently by consumers sooner or later, hamburger in the former or as sugar processed for kid's breakfast cereal in the latter.  The commodity foodstuffs are frontloaded in the food pipeline, so to speak.  They are influenced by multiple factors. 

The PracticalDad Price Index however, is measuring the prices of commonly used foodstuffs at the retail end of the food pipeline.  Hamburger and hot dogs, canned and fresh vegetables, common dairy items that we use in our daily cooking and food consumption.  While I haven't done any real examination, it would appear that there's a general lag of several months in the food pipeline and the behavior of the PracticalDad Index is basically lagging the CRB Index.

So what's the takeaway here?

  1. That the PracticalDad increase is only the first of further to come as the CRB commodity increases work their way through the food production and delivery pipeline.
  2. That while the commodity increases might be outsized, they'll be somewhat contained - although still exceptionally painful to a population in which over 47 million are on food-assistance - since the market basket is composed of other items as well.  But on the whole, this is still a bad, bad thing.
  3. Expect that as weather and drought related conditions exist, there won't be a significant improvement unless demand for some of the foodstuffs decreases as to force producers to control prices and accept a lower profit margin...and good luck on that one.

And one other note about this.  The commodity inputs now are largely weather/drought related, and I've seen significant increases in the dairy segment of the PracticalDad Index; as the weather changes and herd sizes increase and crop production increase, the commodity prices will drop - as they did for example, in mid - 2011.  Will these decreases also feed through to simple price declines in the grocery store?

 

 

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