By Andrew Nyquist
Last night I was interviewed by SmartMoney about the recent rise in food prices. The article was published this morning and focuses on inflationary pressures showing up at your local Supermarket. Food inflation is, and will continue to be a hot topic, as evidenced by today’s CPI (Consumer Price Index) release.
To borrow a phrase from Minyanville founder Todd Harrison, it’s a bit of inflation on things we need like food and gas and deflation on things we want like housing and other financed items. This is a byproduct of artificially low rates and easy money during an ongoing financial crisis. By and large, commodities and input costs have been pressured to the upside over the past year and manufacturers and grocers are simply passing along the higher input costs to the consumer.
There is also a bit of a timing lag between rising wholesale prices and retail prices. It typically takes some time for the product to go from farmer to elevator to exchange to manufacturer to supermarket to consumer. This affords a short but valuable amount of time to feel out market trends before taking decisive action on prices. Either way, it is entirely possible that the recent sell off in commodities may not slow the rise in CPI until year end or early next year.
But note that retailers have been sneaking in price increases for sometime, just not in the obvious way that a consumer has come to expect. It’s what I call “honey they shrunk my grocery bag.” The very same items we know and love have been shrinking for some time. Bags of chips and boxes of cereal and crackers… same price, smaller bag or box. They are simply reducing input costs in an effort to keep prices stable and attractive for consumers that have been hit hard by economic hardship and uncertainty. But this can only go on for so long until the input amounts have to stabilize and the actual price has to rise. We are seeing this of late, as food prices and energy costs are pushing the CPI higher.
It’s also a bit ridiculous how talking heads have pointed to CPI minus food and energy over the years, as if those are not “real” everyday costs, when in fact they are what fundamentally sustain us day in and day out.
I hope this finds you well. Thank you very much for reading and supporting See It Market.
Here are some SmartMoney articles that you can catch me in:
Five Sites for Hot Stock Tips
Kindle Fire: Amazon’s New Tablet Brings E-Reader Bargains
Get Wireless Alerts Before the New Rules Kick In
Inflation May Hit Splurge Items More Than Staples
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