Hansen argues the CPI should include food prices

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.”

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The impact of rising food prices in the U.S.

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.


Phoenix Will Tax Food Again

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.

See azfamily.com for more details.


Get ready to pay more for your 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.”


Food packages are shrinking, but prices remain the same

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:

  • canned fruit: 16 ounce cans is now 14 ounces
  • soda: 20 fluid ounce bottle is now 17 fluid ounces
  • Häagen-Dazs ice cream: 16 fluid ounces is now 14 fluid ounces
  • dog food: 20 pound bag is now 18 pounds
  • 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.”