Last week, the WSJ observed that 3 major food companies were having "their lunches eaten by soaring commodity prices. Costs at Campbell Soup, J.M. Smucker and Hormel Foods rose faster than sales in the prior quarter ended in October, helping to push their share prices lower at a time when such defensive stocks ought to be in high demand."
While had Campbell reported a 6.7% year-over-year revenue growth, its costs of goods sold rose 8.7%. Same thing at Smuckers: a 17% sales growth, but a 19% jump in costs. Even though Spam-maker Hormel had an 11% drop in hog prices, high feed costs hurt its Jennie-O Turkey Store division.
After years of absorbing these cost increases, its reached the point where there is little choice but to pass price increases on to consumers. According to an AC Nielsen survey, eight U.S. branded-food companies had raised prices by more than 2% over the 12 weeks ended Jan. 26. Annualize that, and its a nearly 9% price increase:
"This is all hard to ignore…unless of course you’re an economist. They often disregard food prices when measuring inflation."
And that’s our quote of the day.
Thanks, Mark!
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Source:
It Is Hard to Ignore Soaring Food Prices
Mark Gongloff
WSJ, February 15, 2008; Page C1
http://online.wsj.com/article/SB120303447307470075.html
Downsizing J6Pak.
Yep, I used this story for my blog yesterday as well. And as a professional economist all I can say is.
Ouch.
http://pbp.typepad.com/economy/2008/02/its-hard-to-ign.html
Visiting Wally World for my monthly purchases of staples, it was interesting to notice;
Chickens on strike. Eggs $1.69/doz
Cows on strike. Milk $3.49/gal
Ma Campbell tomato soup. 54 cents
Bread? fogetaboudit.
Food price spike in 1970-74 was blamed on the El Nino effect limiting the anchovy catch. I wonder what the reason de jour will be this cycle.
Bananas, 38 cents. Pretty good price.
Distilled water (for my coffee maker) up 12.5% (!)
Frozen pizza up 19% (!?)
Store brand peanut butter up 27% (!!??)
Noted a number of things “on sale” where the sale price is the regular price from a few months ago.
It should be included in inflation (and is in the CPI-U), but the fed should not take food inflation into account when setting rates, as monetary policy isn’t going to change food consumption.
The quick fix to this particular issue is to end all subsidies/mandates for ethanol.
Walmart shareholder quote: thank god we sell food and thank god for dumber than shtick analysts.
If they take the high fructose corn syrup out of everything I might buy it again. No promises. Oh, and Campbells has too much sodium in their soups. Smuckers has the HFCS problem, won’t buy it. As for Hormel, don’t get me started on their processed meat garbage food.
Since this fall, a bag of hot dog rolls has gone from 89 cents to $1.29 cents.
Fred, do you live in Panama? Bananas here are .49/lb…even the ones that have been stepped on and mushy are sold at .33/lb.
BR: another blogger had a similar observation today re: $1.00 bagels.
P.S.: Someone jacked up the price of my rum, too.
Food and fuel prices are inelastic. Strictly supply and demand with no consideration for the contraction or growth in money supply. Demand exceeds supply more every single day in these commodities.
As credit contracts which it currently is, these will not move down like the industrial metals ect. when it really goes to Hell in a handbasket.
Inflation in things we must have, and deflation for things we formally wanted which is damn near everything else under the sun.
I’m with Donna. I only eat free range road kill. If it’s twitching, even better.
Remember, morning road kill is the most important roadkill of the day!
Hoard sugar…………my book.
What’s happening with ethanol is criminal. Negligible benefit for energy independence, and taxpayers have to pay twice — once in the form of subsidies, and again at the supermarket.
If there’s any upside, maybe higher corn prices will mean less high fructose syrup. Aren’t Americans 1/3 corn or something?
That is very close to what I experienced last year, a nearly 9% increase in food costs.
Any commodity trader could have told you this for the past two years, at least. Check a corn chart; $5.00 is a wet dream for farmers but for the consumer: $2.80 is a solid high price…..til the fake subsidized ethanol. But wheat is near the moon at the unheard of price of $11 which is close to four times “normal.” Can say same for almost all farm products. Inflation measured excluding energy and food is so bogus as to be laughable; this bogus stat is in there so
SS payments ADJUSTED FOR INFLATION can be set artificially low.
Hopefully China will have problems and prices will come down.
Blatant self-promotion here.
I deal with this today on my blog — the whole inflation thing, that is.
http://www.bonddad.blogspot.com/
In Maine, a five pound bag of store brand white flour has gone from $1.59 to $2.19 since early this winter.
Then why did Buffett just increase his stake in Kraft?
Could it be time to review those restrictions on imported sugar?
I know this is off topic, but what happened to Moody’s giving the bond insurers (MBIA) until last week to secure capital before they were downgraded?
Now do you think they have price increases at Whole Foods too?
The more I learn about things, the more I think we’re going to have biflation (sic) . . . deflation in assets that the Feds want to keep high (stocks, housing, credit) and inflation in assets they want low (commodities, like the CRB / metals). I also believe the more that the Feds try to pump up what they want they more they will just pump up what they don’t want-(money, like electricity flows to the path of least resistance-i.e. where’s the money being made).
Pfft… Next you’ll be telling me that high fuel prices are also contributing to inflation.
This is so 1975: A newbie, unknown, messianic candidate for president promises to save us from ourselves while the world past our shores grows ever more powerful and we ever less hegemonic. A federal government prints more and more money for less and less real output, fueling inflationary flames while trying to juice an economy that refuses to grow in any real way.
Malaise sets in. America, grown fat and stupid, looks to be at the end of her ride through history. President Obama gives chats in his sweater from the side of an ethanol-fueled fire.
It bottoms around 2012 w/ a new president and a willingness to swallow the medicine needed to beat inflation to clear the way for real growth.
Yes, this is so 1975. At least my teenage son and I will have something in common–coming of age in a time of economic decline.
Don,
Maybe 1970 is a better analogy than 1975?
“They often disregard food prices when measuring inflation.”
Often?
Silly me!
I thought the omission was systematic. Isn’t the methodology of measuring inflation specifically designed to ignore this mundane stuff?
Estragon,
Maybe, but no historical analogy is perfect. I’m thinking as much presidential politics as economy here. IMO, the economic and political despair of the early to mid- 70’s led directly to Carter’s election–people just wanted something new and someone to make them feel better, w/out the actual pain of facing the reality that the world had changed. I figure Obama’s candidacy represents much of that today.
But please, I don’t mean to stir the lizard-brains (to use Barry’s phrase) of the politicos. I have no dog in the hunt, and frankly think that the options, political and economic, will be few for whomever wins the job. Pain deferred is generally pain increased.
Don,
Understood. I was thinking more of the economic aspects. The groundwork for the political and economic problems of the 70’s was laid down in the 60’s, which is where I was thinking 1970 might be the better analogy.
You’re probably right about deferring the pain. I really doubt a president of either ilk will have the support to take on the really nasty problems.
Why is it that when the price of crude oil reaches a new (nominal) high, the Dems say that we have to “go after” the greedy oil companies.
But when food prices go through the roof, the politicians are strangely silent.
WSJ deal journal says iron prices are rising by 65%. My back of the envelope calc says Iron is in about 22% of GDP. So you’ve got that going for ya.
My M&M’s in the vending machine went up this week too. 75 to 80 cents. But no worries mates, my boss told me I’m getting a 0% raise this year.
I paid $5 for a gallon of milk here in Manhattan recently. Made the 3.69 at the other store feel like a bargain.
We’re F’d!
Priceless…really!!
“This is all hard to ignore…unless of course you’re an economist. They often disregard food prices when measuring inflation.”
And that’s our quote of the day.
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ya musta been talkin about Larry Kudlow,
rich academic, lives in a mansion, and proclaims
for the common poor that food is not important for inflation.
>Distilled water (for my coffee maker) up 12.5% (!)
Fred, dude, get yourself a brita pitcher. Much cheaper per gallon and our coffeemaker has no complaints about its output, which honestly you can push 3x what it says it will take. Just takes longer for water to get through the filter as it gets old.
Anyway, price of food. Yes. I don’t know how people at the median household income get by. I honestly don’t. We’re fairly comfortable, but we still gravitate to the lower prices at the farmer’s market. We also never buy processed food, and we bought ourselves a crock pot for christmas. Now we take a $1.15 bag of split peas, a 40¢ onion, a few strips of uncured organic bacon (75¢), and make 6 big meals out of it. For a buck and change, beans, split peas and lentils go a long long way.
We belong to an organic coop store. Last 25lb bag of organic flour we ordered was $20. Our coop lets owners order direct. Your local one may vary. We don’t buy bread, we make it. The price difference and quality can’t be beat. If you get out of the profit-motivated commercial realm, you’ll feel better about what you’re buying from many angles.
What have prices to do with inflation?
What have prices to do with inflation?
———
The “P” in CPI, Core CPI, etc. is Price, no?
mich, really?
I bought kiwis at Walmart for 33 cents a piece. Cheapest around. Last weekend, they’re now 44 cents. 33% rise in price.
I see the Consumer Price Index mentioned.
I see costs of specific items rising.
Again I ask – what has price to do with inflation?
Inflation and price (wage and consumer) are related because inflation is price instability.
Inflation and price are related – hence, they are not one and the same.
That is the point of my original question. Many factors can affect price.
Monitoring price fluctuation is an inefficient method of monitoring inflation as prices can be affected by factors that are not inflation.
Isn’t it better to monitor the cause rather than an affect that may not even be related?
So if I were to answer my own question – what does price have to do with inflation – the answer would be: we don’t know, for sure.
What difference does it make to know the cause of a theft, all I care is my wallet is stolen, my money is gone?
At the end of the day, people are giving examples of how everyday purchases are going up, and even though it is not explicitly said in the comments, it is known the wages are not increasing in the same speed.
Therefore, people’s standards of living are diminishing. Further the value of dollar is diminishing…So relative to the rest of the world, Americans are facing inflation. And the term “inflation” covers this situation.
If people were not getting wage increases as much as the increases required to maintain their accustomed lifestyle, I would call that deflation.
Either way, it is about prices, it is about instability, it is about expectation (of future prices)
For all intents and purposes, when one uses inflation (or deflation depending the direction of the p-r-i-c-e of labor and goods&services), it is a heuristic way to express “price instability” and “loss of standards of living”
>> ya musta been talkin about Larry Kudlow,
>> rich academic, lives in a mansion, and
>> proclaims for the common poor that food
>> is not important for inflation.
If Kudlow is a WS shill — the impression I get from this board — don’t go tarring “academics”. You’ll find them on campus.
Mich wrote, “For all intents and purposes, when one uses inflation (or deflation depending the direction of the p-r-i-c-e of labor and goods&services), it is a heuristic way to express ‘price instability’ and ‘loss of standards of living'”.
So, because we don’t recognize the cause of this instability, we therefore treat the symptoms by means of wage and price contols, wrapped in a disguise of world wage arbitrage and manipulations of the interest rates?
If one doesn’t know the cause, one can never find a cure.
everything produced to be sold is correctly termed commodities, something that used to be commonly understood but changed under the pressure of neoclassical economic’s theoretic dependence on subjective categories.
every commodity is both a use value and and exchange value.
a commodity’s exchange value is represented in money as its price, i.e. money does not create price but allows its manifestation.
(the fact that money must act as a universal equivalent exchangeable in one and another quantity for any commodity allows it to become a fetish and contributes to all sorts of illusions).
what is common to all commodities, material and not?
human labor
which as value creating is also the fundamental moment of price
but a moment mediated by cost of production
from this we move to the acts of exchange, to supply and demand, the disequilibrium between which helps create relatively short term fluctuations in price level but do not govern these over longer terms.
it must be understood that price and labor value are not identities, or that exchange value can and does rise above, comes into contradiction with, the labor value embodied in the product.
which has had to do with the struggle to recapture earlier and higher rates of profit or at least mitigate against further decline. (rate of profit here understood as total surplus value created relative to total capital)
this same struggle has driven production capital’s turn to finance and the resulting financialization of production, to include what are essentially speculative activities in futures markets and a driving up of primary commodity prices with little basis in real economy conditions but many justifying stories and theories which, under examination, fail to hold.
the financializing of primary commodity prices* makes their present bubble more than somewhat distinct from that of the early 1970s.
*futures markets were both relatively undeveloped and, as in the case of oil, nonexistant at that earlier date.
a look at long term, multi-decade, open interest on grains like wheat can also provide perspective as can the cftc’s cib reports on index trading.
these are not, as mythology argues, efficient markets but have further streched the prive/value gap.
With food prices going up I am grateful that I found a prescription discount card to keep my meds’ prices down. It’s at http://www.rxdrugcard.com. The membership fee is only $4.50 a month. Drug prices are shown on that website to check before you enroll. You can save up to 80%. Generics and brand-name drugs are both covered.