The debate about inflation versus deflation continues as we wade through the uncharted territory of Federal Reserve monetary policy. The Powers That Be are desperate to avoid deflation and while they’ve officially cut back on the latest round of Quantitative Easing by $10 Billion each month, a huge surge of liquidity continues to flow into the American economy. But while the financial guys continue to call for inflation, particularly in commodities because of these monetary actions, the reality on the local grocery store shelves is revealed a bit differently in the January 2014 edition of the PracticalDad Price Index.
The results are honestly startling on one level and frankly angering on another level.
Month Total Index Food-Only Index Spread
10/13 107.83 112.98 4.63
11/13 107.83 112.81 4.98
12/13 109.35 113.41 4.06
01/14 109.30 112.39 3.09
The Total Index for the 47 item market basket declined slightly in January 2014 to 109.35; the upshot is that since the index’s inception in November 2010 (11/10 = 100.00), the price of the market basket has risen by 9.30% although this is still almost 1.5 percentage points higher than the index level of 107.83 two months earlier.
What’s startling is the activity of the 37 item Food-Only Index – which has been stripped of the 10 non-food items – over the past several months. Again, the month of November 2010 is equal to 100. While the index level spiked by .6 points in December 2013 from November 2013 – 113.41 from 112.81 – it collapsed in January by more than a full point to 112.39. the lowest level since October 2012, fifteen months previously and still almost a full two points below the Food-Only Index peak of 114.33 in December 2012. For food, this is frankly deflationary.
So what’s notable?
- Foodstuffs immediately relatable to commodities – meats, oil and vegetables – declined by signficant amounts. In the one month between the December 2013 and January 2014 pricing trips, 21% of the basket items – 10 of 47 – had nominal price declines, Offsetting this was the finding that 17% of the basket items – 8 of 47 – had nominal price increases. For a full explanation of the PracticalDad Price Index basket components, see here. But of these declines and advances, the huge majority of price declines – eight of the ten – were in the food category; there were items that could be considered statistical noise but a pound of chicken dropped by 3.8%, a 48 ounce bottle of canola cooking oil declined by 5.6%, a five pound bag of potatoes fell by 6.7% and a one pound pack of hot dogs plummeted by a full 10% as one or another grocery store somehow managed to put the same product on the shelf for a considerably less amount than before.
- Not all aspects of price inflation are related to monetary policy, but are instead purely business decisions. Such was the case in the 7.2% increase in the cost of a size 3 box of diapers, purely due to the stealth tactic of decreasing the package size while maintaining the nominal price. An October 2013 article in Zerohedge reprinted an internal document from Kimblerly-Clark Corporation that they were planning to decrease the package sizing of their Huggies brand diapers – which they consider to be a high margin product – in keeping with competition. I was surprised to see this so soon as one of the grocery store generic diaper package decreased in size from 96 to 84 diapers per pack (although I have converted each back to a 100 count unit price for the sake of uniformity), a 12.5% rise in the price of their product. This comes on the heels of a significant stealth inflationary rise in the cost of formula and I fully expect that this will occur in the other store in the next several months; note that the third store simply removed their quantity sized box of diapers from their shelves more than a year ago, probably because the customer base doesn’t purchase enough to make it worthwhile to carry in inventory.
- The activity within the 47 item market basket leads me to wonder what’s occurring within the foodstuff supply chain. First, there have been instances in which products have had signficant price declines in a particular store while the other stores have been unchanged. Such was the case, for example, with a box of spaghetti and can of tomato sauce in a particular store and most recently, a huge 20% drop in the price of a one pound package of meat franks. This is good news on one hand, but it would worry me if I was particular about the contents and quality of that particular item.
- The other aspect of the supply chain – and one that could link back to policy – is that there are now occasional items which are intermittently missing from a particular store. One store has wholly dropped the quantity box of diapers and quantity offering of Enfamil formula from their product offering, most likely due to a lack of customer demand and subsequent profitability. But when I began the index in November 2010, there were no instances where a random product would be not only absent from the shelf, but wouldn’t even have a shelf sticker. It’s one thing to not have the inventory out, but another completely to not even have it available, as demonstrated by the complete absence of shelf stickers…and I actually do check for the stickers, even if I search for the sticker on the very bottom shelf on hands and knees. It’s sporadic and intermittent, but it’s now occurring. It didn’t happen when I shopped last week, but December 2013 had three instances of food items simply not there, a 2.7% rate (3/111 food items across three stores).
So pay attention to what you hear on the news, but understand that the commentary is just that. Commentary. Because we really are in uncharted waters…