Some Comments on Food Prices

For the better part of the last three years, there’s been an ongoing debate about whether the economic climate and monetary policy is going to lead to either deflation or inflation.  With all of the talk and uncertainty, I decided a year ago to pull together my own retail grocery price index in order to ascertain what was actually occurring in my own little corner of the world, apart from all of the conjecture and commentary.  This led to the birth of the PracticalDad Price Index in November 2010 and unfortunately, this baby’s growing.

There are some thoughts that should be passed along.

  1. Because I actually managed a local cost-of-living survey when I graduated from college, I do have previous experience in such creatures and this was not a foray into uncharted territory.  It took considerable time and consideration beforehand but once established, the process is a straightforward one.
  2. There is no doubt that this is not a national effort and it is purely what’s occurring at the retail grocery level for a particular county in the Middle Atlantic region of the United States.  However, while there may be differences from the Mid-Atlantic to the West Coast to the Boston-Washington corridor, the question isn’t what the actual prices are from one place to another so much as what’s happening to the level of the prices.  Having lived throughout the mid-South, Suburban Maryland/DC and Mid-Atlantic regions, I know full well that grapes are more expensive in New Jersey than they are where I live.  But I’m hard pressed to say that what’s happening with prices in my county is contained solely to my county; two of the three grocers surveyed have operations far beyond the county borders and all three of them obtain their products from wholesalers and manufacturers that are supporting stores across an expansive geographic area.  Might prices be up a half-percent less elsewhere?  Perhaps, the reality is that they are up significantly beyond what’s admitted to by the official statisticians in the US government and that’s what this effort shows.
  3. Aside from having previous experience with a survey, I’m also the guy who did the shopping for years (and while my wife does more because she likes it, I still do the lion’s share).  When I determined what items should compose the 47 item market basket, I drew heavily upon my experience shopping for a very young family of five.  What does a family, having recently undergone a 55% paycut, have to do make the dollar stretch farther?  What are the basic items that we need to purchase in order to stock our pantry and feed ourselves?  That’s why the market basket is stocked with basics such as hamburger, white bread, oatmeal, apples and carrots.  The other premise was based upon my experience of sticking whenever possible to store brands in order to save pennies.  There are a few products that my wife disliked enough that I returned to name brands, but my thinking was that the cumulative total of buying store brand everything saved enough to make it worthwhile.
  4. This is what makes a 5.71% rise in the cost of the basket frankly scary.  The items comprising the basket are basics without any real room for substitution.  If you give up arugula, you can shift to iceberg lettuce and if Campbell’s becomes too costly, you can go to the store brand.  But how do you replace 80% hamburger or store brand white bread?  When budgets no longer allow for restaurants, people can opt to cook.  But what do you use when cooking oil becomes too costly?
  5. As a child in the late 1960s and early 1970s, I recall news reports of housewives picketing their grocers because the cost of food was rising beyond their budgets.  But having watched the actions of the grocers for the past eleven months, I actually have to admire some of their decisions and don’t consider them to be the "bad guy".  Understand that the grocery business is one with exceptionally thin profit margins so that there isn’t any real ability for them to eat the losses.  There have been multiple instances in which more than one grocer has had items for sale with considerable savings prior to raising the price; you can argue that it’s done in order to hide the real price increase over the two or three week period – wait, was that the price before I bought it on sale three weeks ago?  Nah… – but it’s also giving folks the opportunity to stock up on an item in advance.  Likewise, I’m now seeing where the grocer is actually dropping their store brand for that particular size and replacing it with a much lower cost off-brand product.  Good business for them?  Sure, but it’s also an acknowledgement that they understand that folks are stretching and they’re acting to assist the consumers.
  6. While two points don’t make a trend, the fact that the market basket rose half as much in two months in the previous nine months is worrisome and could indicate that retail food inflation is picking up a head of steam more quickly than the government or Federal Reserve would want to acknowledge.  That’s precisely why I’m honestly anxious about the pricing that’s going to be done in early October.

Time will tell. 

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