In January of this year, olive oil prices fell to 2009 levels. Four months later, prices have fallen to ten year lows. Consumption has plummeted in olive oil producing nations Greece, Spain, and Italy, together responsible for 70% of the world’s production. In parallel, a supply glut has hit the market due to a bumper crop in Spain. Meanwhile, struggling consumers have substituted cheaper oil like sunflower oil.
This price drop has put additional pressures on some of Europe’s poorest regions.
For more details see “Europe’s (olive) oil crisis“
Last year, my company raised prices 4-5% on food in its cafeterias. With the ink on those price hikes only 10 months old, my fellow employees and I are getting hit with another substantial price hike. The planned 4% hike is once again well ahead of the general (reported) rate of inflation.
To add insult to injury, the cafeteria will now be charging by the ounce for frozen yogurt. I am sure this is a “Dr. Duru” policy given I am guilty as charged for piling on the chocolate good stuff as high as I can.
The inflation accountants may be relieved to know that we have also received expanded meal service in recent months. Perhaps a hedonic adjustment evens everything right out…
Global supplies of agricultural products are expanding, perhaps in response to past shortages. These forces are driving down prices and discouraging hedge funds from making bullish bets in agricultural commodities. According to Bloomberg in “Funds Reduce Bets on Rising Food Costs to Lowest in 27 Months: Commodities“, the bullishness of hedge funds has reached lows not seen in over two years.
Here is a key quote that describes the situation:
“World food prices tracked by the United Nations retreated for a fifth consecutive month in November, the longest decline in more than two years. The U.S. government said Dec. 9 that combined global inventories of corn, soybeans and wheat will be 3.2 percent larger than anticipated a month earlier. Cocoa capped its longest slump in 50 years last week on increasing supplies from Ivory Coast, the world’s biggest producer.”
DBA, the PowerShares DB Agriculturae Fund ETF, tells the story. the ETF has now sunk to 14-month lows. Today’s price marks the previous post-recovery high in 2009.
On Thanksgiving Day, NPR’s Marketplace included a follow-up segment to a story from 2009 on Jennifer Reese, a San Francisco woman who set out to determine when it is really cheaper to make things at home versus buying in the store. She has now published a book about her experience called Make the Bread, Buy the Butter: What You Should and Shouldn’t Cook from Scratch — Over 120 Recipes for the Best Homemade Foods.
Her general conclusion is that it is cheaper to do the “non-glamorous” things at home, but glamorous activities like raising chickens, goats, and turkeys cost too much in infrastructure to make it worthwhile. It is definitely cheaper to make your own bread and muffins but more expensive to make candied ginger. It is cheaper to buy lemonade than make it – not to mention all the effort it takes to squeeze the lemons. Reese also addresses convenience, food quality, and moral choices.
The book looks like a worthwhile read for those considering to beat higher food costs with homegrown and homespun creations.
DemandTec (DMAN) sells software to help companies optimize the pricing of their products. The company specializes in the retail space.
On a day in which commodity prices and stocks took another plunge, DemandTec released the results of a poll of 16,000 leading retail and consumer products users that asked about pricing expectations:
“Nearly 50 percent of respondents agree that shelf prices will rise moderately as both retailers and manufacturers absorb some margin compression in the coming six months.”
Although it is not 100% clear, the poll seemed to focus on shelf prices of food products. A lot of the margin compression will be coming from commodity prices.
CNBC reports on food inflation in the context of the typical BBQ. If your typical BBQ is a cheeseburger, baked potato, and beer, you are paying 8.4% more this year than last year.
Other points from the video on year-over-year price changes:
Ground beef up 16.7%
Sirloin steak up 6.9%
Boneless chicken breast down 4.0%
American cheese up 3.6%
Head of lettuce up 14.9%
Tomatoes down 6.5%
White bread up 8.3%
Potatoes up 21.4%
Wine up 0.4%
It had to happen eventually. My company recently announced that prices in the company cafeteria are increasing 4-5% in early April. No across the board wage increases have yet been announced though… 🙂
Steve Hansen at “Global Economic Intersection” presents a compelling case arguing that food prices should be included measures of core inflation (the Consumer Price Index, or CPI). Hansen simply looks at the history of the core CPI excluding food and energy versus CPI for food only versus CPI for energy only and comes to the easy conclusion that “…there is strong correlation between food price increases and the overall Consumer Price Index (CPI)…with only rare periods of exception.”
His closing remarks on the topic are a vivid reminder of one of the many reasons I care so much about “Inflation Watch”:
“Inflation is a very personal enemy for most Americans who live paycheck to paycheck. When your paycheck does not get larger, and the prices go up – you must cut something out of your life. And when Fed Chairman Bernanke says inflation is low – you know that he is addressing the segment of the population which does not live paycheck to paycheck.”
Jeff Cox at CNBC provides a good accounting of the price hikes in various foodstuffs December-to-January and year-over-year (January):
* Ground beef up 6.8 percent month over month, and 11.1 pct year over year.
* Butter, up 3.2 percent monthly and a stunning 27 percent over the past year.
* Coffee, up 6.5 percent and 16 percent.
* Potatoes, up 3.6 percent and 7.1 percent.
* Lettuce actually fell 5 percent monthly after a spike higher in December, but is up 5 percent over the past year.
* Bread up 1 percent and 3 percent.
* Chicken up 0.8 percent. and 4.3 percent .
* Egg prices have been fairly steady.
* Milk, down slightly month over month, but up 2 percent year over year.
Orange juice and wine are actually down year-over-year, 1.6 and 6.9% respectively.
Overall, Cox finds the inflation gauge from the CPI very unsatisfying given fuel and food now consume over 12% of after-tax income. As deflation fears are becoming a distant memory, I expect the grumblings to grow ever louder that inflation feels and is much higher than official statistics are telling the general population.
The Phoenix City Council has voted to tax food again after ending a similar tax in the mid-80s. The City Council is looking for ways to fix a large budget shortfall. The association which represents police in Phoenix claims that the 2% tax is not sufficient to pay for police and fire services and has requested an increase to 4%.
Mesa and Surprise are the last two cities in the Phoenix, Arizona area that have no tax on food.
An economist at Wells Fargo expects milk, beef, pork and chicken prices to increase sharply next year, according to Bloomberg News:
Food prices may jump as much as 6 percent in 2010, Swanson said. The U.S. Department of Agriculture on Nov. 25 forecast 3 percent to 4 percent food inflation next year, up from an estimated 1.5 percent to 2.5 percent in 2009.
Producers of cattle, hogs, dairy cows and poultry cut output after a jump in feed costs last year, reducing supplies as demand for meat is rising at home and abroad, Swanson said. Corn, the main source of animal feed, will rally next year because of record demand for grain to make ethanol, he said.
“Protein inflation is going to be much higher than people are anticipating,” Swanson said Dec. 9 in an interview from Minneapolis. “Corn is a proxy for feed costs, and right now the value of all meat and dairy output is below the price of feed on a long-term relative basis.”
No it’s not your imagination. That roll of toilet paper you just bought really does have fewer sheets than it used to.
WINK News of Southwest Florida reports that consumers good companies are up to their old tricks. Rather than raise prices, they are making their packages smaller and charging buyers the same price. A few products to look out for, according to the WINK News team:
Consumers are noticing, and–surprise!–they aren’t happy. When Mary Hance wrote about shrinking packaging last month for her local newspaper in Rutherford County, Tenn., she got an earful.
I had one man call and tell me that he thinks eggs have gotten smaller with different grading criteria — meaning that today’s large egg is what used to be called an extra large egg and so on. I read online about shrinking packages for everything from dog food to contact solution, canned ice tea, liquid detergent, yogurt and more. Jan Tidwell, of Hermitage, wrote: “Ms. Cheap … you are so right about many things being reduced — especially about a can of tuna. I remember when it use to make 3 or 4 sandwiches, now it barely makes 1 1/2.”
That last reader is correct, by the way: a can of tuna contains less tuna than it used to.
“Yes, these days just about every business is struggling to contain costs,” Hance concludes, “but companies need to be up front about it and let their customers know what they are doing and why they are doing it — instead of trying to slip one over on us.”