Practical Dad

PracticalDad Price Index - June 2014 - Prices Up (But Due to Supply, Not the Fed…)

The results of the June 2014 PracticalDad Price Index are in and it tracks with what we're seeing in the media as prices are up again, driven by increases in dairy and meat prices.  The Total Index for the 47 item grocery marketbasket rose from May's 109.85 (November 2010 = 100) to June's 110.53.  Removing the ten non-food items in the basket (see the basket composition here), the Food-Only Index for the remaining 37 foodstuff items rose significantly from May's 111.54 (November 2010 = 100) to June's 112.65.  In other words, the price of the representative foodstuffs in the basket are up 12.65% since November 2010's Index inception but the Food-Only Index is still well below the high of 114.33 reached in December 2012.

There appears to be a significant difference between the reasons for the recent and prior price increases however.  In late 2012, there were significant increases in the prices of commodity items such as canola oil (affected by oil prices and the offsetting rise in biofuel demand), sugar and coffee due to the apparent flow of hot money liquidity caused by the existant quantitative easing process.  But since then, the Federal Reserve has step-decreased the quantitative easing to approximately $45 Billion per month so that the money isn't flowing as readily as it did previously.  When the Food-Only Index peaked in December 2012 at 114.33 (14.33% over the November 2010 start), the average cost of a 48 ounce bottle of canola oil was $4.09 and the cost of a five pound bag of sugar was $3.49.  As of June 2014 however, the cost of the same size bottle of canola oil is $3.96 and the adjusted cost of a bag of sugar is $2.82; note that the sugar has been adjusted upwards to a five pound bag size since the grocers and producers have decreased the standard size bag of sugar via stealth inflation to a four pound bag.  The unadjusted price of a bag of sugar is even less now.  It's the same for coffee.  Even though the producers utilized stealth inflation packaging changes to decrease the size of the standard can from 13 ounces to anywhere between 11 and 11.5 ounces, the adjusted cost of the can of coffee (back to a 13 ounce equivalence) is now averaging $3.30.  This is down from the December 2012 can price of $4.47, for a decrease of 26% over the same 18 month period.  Again, the hot money has receded...

But why the renewed price increases now?  After the December 2012 peak, the Indices actually began to decline and you could watch the ongoing combat between the Fed policies and deflationary forces caused by a weakened economy.  But the uptick began again recently and this time is due not to monetary policies but to actual forces of supply and demand.  In the past year, the size of the national cattle herds have actually dropped to lows not seen since 1952 and drought out west is worsening, affecting the food and dairy supply out of that region.  Beef has since increased in the cost per pound as well as dairy and cheese prices; also on the cusp is the effect of PEDV - Porcine Epidemic Diarrhea Virus - which has caused hog farmers to cull herds with affected swine.  This disease began in the US in mid 2013 and has spread with an impact on the cost of bacon and ham.  While I do not track the cost of bacon, a pound of sliced cooked deli ham has risen from $4.83 in December 2012 to $6.32 in June 2014 for an increase of almost 31% in an 18 month period.

This is clearly beyond the purview of the Fed policies and it probably makes some within the bowels of the Marriner Eccles Building happy since it accomplishes what they wanted in the first place.  The only problem is that these price issues are beyond the immediate remedy of the Powers That Be and compound the impact of a decreasing family income.

 

PracticalDad Price Index - June 2014
Month Total Index (11/10 = 100) Food-Only Index (11/10 = 100) Spread
3/14 109.41 112.06 2.82
4/14 110.28 113.59 3.31
5/14 109.85 111.54 1.69
6/14 110.53 112.65 2.12

 

 

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