PracticalDad Price Index – December 2015

The data for the December 2015 PracticalDad Price Index was collected and calculated in the past three days and as I worked my way through the refrigerated aisles of the stores, I could only wonder about the price of eggnog.  This is the time that the dairies start rolling out the eggnog and knowing how the price of eggs has risen because of Avian-Influenza effects upon the national supply, I wondered about the lag-effect as this works through the food-supply chain.  It certainly happened with the price of sweetened cereal (store brand frosted flakes) after the price of sugar rose because of hot money flows into physical commodities several years ago during one of the QE periods.  But it’s not something covered routinely because it’s simply not routine and frankly, it’s pricey enough that the typical family isn’t going to spend money on it.  So musings aside, what happened to the 47 item marketbasket this month?

Frankly, there was only a minimal increase in the Total Index for the 47 item basket, rising from November’s 104.79 to December’s 104.92 (November 2010 = 100).  The 37 foodstuff item subindex likewise rose from November’s 105.97 to December’s 106.39 (again, November 2010 = 100).  Bear in mind that the Food-Only Subindex now at 106.39 peaked a year ago in December 2014 at a high of 115.13, so it’s still down 58% from it’s all-time high only a year ago.  There have been no new product substitutions made by the grocers, in which one grocer completely replaced it’s store-brand line at a markdown on products across the board.  Remember that the grocers have very thin profit margins and will be most sensitive to the spending patterns of their customers; as money flees the economy, they’ll be the first to notice the changes in spending patterns via the profit per item on the available shelf space. 

The question now is this:  as the Federal Reserve prepares to increase the discount rate for the first time in years – via a withdrawal of money from the system by way of reverse repos – what will happen to these food prices?  Probably nothing in the immediate future, but after several months…look out below.

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