Topic: Food Inflation

[ren]

Anybody else notice food getting expensive? Looking back over a few years, the change in prices are pretty obvious. A slice of pizza used to cost just over $1 but now the cheapest I've seen is $3 with a lot of places leaning towards even $4 or $5. A local diner where I sometimes get breakfast just put a sign up saying that everything on the menu is now $0.50 higher as a temporary measure to the increased cost of gas and food.

[Quemaqua]

Yeah, it sucks.  I notice it with eggs and milk, a bit with some vegetables.  I buy a lot of crappy canned food and ground turkey, though, since quitting my job, so it isn't as bad for me as it is for some.

[Cobra951]

I've been hearing a lot about it.  Petroleum prices have the most obvious impact, but in general prices have to go up with real inflation happening.  Too much money is getting printed here.

[iPPi]

Yea food is getting increasingly expensive.

[Pugnate]

Yup.

[shock]

I can't really find lunch for less than $5 now.  I'm happy if it is less than $10.

[gpw11]

I've been hearing a lot about it.  Petroleum prices have the most obvious impact, but in general prices have to go up with real inflation happening.  Too much money is getting printed here.

Inflation is low right now.  2010 had a US rate of something like 1.5% while the average rate of US inflation is somewhere around 3-4%.  It's the same in Canada and I'd assume most developed nations. 2009 was actually a period of deflation.  Since 2008, inflation levels have been the lowest in decades. The increase you're seeing in food prices has little to nothing at all to do with the rate of inflation as of late (although you can expect them to have an effect on it).

The food price increase is mainly attributed to scarcity (real or perceived) due to problems with a few staple resources.  Before the current oil spike, weather conditions affected staple crops pretty much across the globe, which causes everything down the line to increase.  I imagine it will be just as bad in the near future, with there being concerns about wheat crops.  Even beer prices are expected to rise. The perceived part comes in because of speculation on the commodities markets.  In today's world, speculation leads to most price increases like this.  The good part about that is it is probably short lived.  The bad part is that prices for goods that normally don't fluctuate probably aren't going to drop back down 5-8% after a market correction.

[ren]

Food prices typically lag behind commodities by about ten months, if that held true we can expect to see a massive jump in food prices in the near future.  It depends though, after the last oil shock companies are much more willing to adjust the price of food instead of trying to keep prices stable and eat the cost of temporary spikes in prices which would dramatically shorten the amount of time you'd expect for that 5-8% market correction. Canada's expecting something like a 6-7% inflation rate just for food in 2011 which is reasonably above the level of inflation and I'd bet something that won't drop anytime soon. You take the wheat crisis in China, the oil speculations due to the middle east, Japan suddenly wanting to import a bunch of food and the probably overvalued Canadian dollar and I would really doubt the food market will correct itself.


Warning: I'm quite drunk so I'm not sure how well that turned out.

[W7RE]

I've been buying ground beef for a while now at about $2/pound when it goes on sale. I think the normal price was around $2.50. A week or two ago it was like $4. Seems like a steep jump.

[gpw11]

Food prices typically lag behind commodities by about ten months, if that held true we can expect to see a massive jump in food prices in the near future.  It depends though, after the last oil shock companies are much more willing to adjust the price of food instead of trying to keep prices stable and eat the cost of temporary spikes in prices which would dramatically shorten the amount of time you'd expect for that 5-8% market correction. Canada's expecting something like a 6-7% inflation rate just for food in 2011 which is reasonably above the level of inflation and I'd bet something that won't drop anytime soon. You take the wheat crisis in China, the oil speculations due to the middle east, Japan suddenly wanting to import a bunch of food and the probably overvalued Canadian dollar and I would really doubt the food market will correct itself.


Warning: I'm quite drunk so I'm not sure how well that turned out.

That seems pretty much right from what I can tell.

Food prices for US typically lag behind commodities by about ten months to a year as we're so far removed from the factor resources, but to much of the world they have a far more immediate reaction; especially to soft commodity prices - agricultural goods. Some of which have spiked 50-100% in the last year. This has lead to a level of panic (reducing exports/hoarding) and soft commodity speculation which has/will further serve to drive the prices up. Goods on the grocer's shelf haven't really reflected this up to this point because wholesalers and retailers HATE increasing prices without collusion. The increased soft staple resource prices and increase energy prices are forcing their hands basically. The price increase we can expect to see over the next year is almost a market correction in itself.  Once the price of, say, Starbucks coffee goes up, I don't imagine it'll be going back down.  I do, however, imagine that the price of coffee bean futures will correct itself.  Actually, coffee might be a bad example...use wheat instead.  Where we see the effect of that correction is in a higher margin for both wholesalers and specifically sellers to freeze prices. Being as far removed from the resources as we are, we don't actually see a lot of the smaller price spikes in soft commodity prices, which is probably the one benefit of living in a system where prices rarely go down. Wheat prices can fluctuate rapidly, thank god bread doesn't.  The issue we're seeing now, compared to when oil prices usually spike is that energy AND soft commodity prices have been rising for a variety of reasons, compounding the increase. Which, again, makes commodity market speculation potentially very lucrative.
 
As for the 6-7% food price increase, the inflation rate may or may not be drastically affected. The CPI which the inflation rate is based off of considers a wide variety of goods - it's not unusual for a drastic increase of one category to be a fair amount over and above the overall level of inflation.  I think that food prices only make up 15% of the CPI in Canada.

[Cobra951]

I can't challenge what you're saying with hard facts.  I just can't fathom the conclusion that we've had a deflationary period.  Nothing has ever gotten less expensive here except housing (buying, not renting).  Everything else seems to go up all the time.  And the Fed policies now (near-zero interest and print it as you need it) can't possibly prop up the value of the dollar.

[Cools!]

Ren, in Ontario it's got to do with the introduction of the HST as well.

[ren]

I can't challenge what you're saying with hard facts.  I just can't fathom the conclusion that we've had a deflationary period.  Nothing has ever gotten less expensive here except housing (buying, not renting).  Everything else seems to go up all the time.  And the Fed policies now (near-zero interest and print it as you need it) can't possibly prop up the value of the dollar.

The 2009 deflation gpw was referring to was shortlived and pretty minor, something like 1%. It was mostly due to a drop in energy and gasoline prices during the recession. Cheaper energy and gas prices didn't last long enough to lower the cost of most goods so price levels in that time stayed roughly level.

Food prices for US typically lag behind commodities by about ten months to a year as we're so far removed from the factor resources, but to much of the world they have a far more immediate reaction; especially to soft commodity prices - agricultural goods. Some of which have spiked 50-100% in the last year. This has lead to a level of panic (reducing exports/hoarding) and soft commodity speculation which has/will further serve to drive the prices up. Goods on the grocer's shelf haven't really reflected this up to this point because wholesalers and retailers HATE increasing prices without collusion. The increased soft staple resource prices and increase energy prices are forcing their hands basically. The price increase we can expect to see over the next year is almost a market correction in itself.  Once the price of, say, Starbucks coffee goes up, I don't imagine it'll be going back down.  I do, however, imagine that the price of coffee bean futures will correct itself.  Actually, coffee might be a bad example...use wheat instead.  Where we see the effect of that correction is in a higher margin for both wholesalers and specifically sellers to freeze prices. Being as far removed from the resources as we are, we don't actually see a lot of the smaller price spikes in soft commodity prices, which is probably the one benefit of living in a system where prices rarely go down. Wheat prices can fluctuate rapidly, thank god bread doesn't.  The issue we're seeing now, compared to when oil prices usually spike is that energy AND soft commodity prices have been rising for a variety of reasons, compounding the increase. Which, again, makes commodity market speculation potentially very lucrative.
 
As for the 6-7% food price increase, the inflation rate may or may not be drastically affected. The CPI which the inflation rate is based off of considers a wide variety of goods - it's not unusual for a drastic increase of one category to be a fair amount over and above the overall level of inflation.  I think that food prices only make up 15% of the CPI in Canada.

Right, but companies have paid in the recent past for keeping prices steady for too long thinking that price spikes would be shorter lived than they actually were. I was thinking that this time around they may react faster to prevent that and then lower prices after it subsides. You can see it being done with airlines who have started to fluctuate their prices with the cost of gas. I know it doesn't usually happen that way with goods like food but that temporary $0.50 increase in the diner from my first post made me think this time could be different.

Ren, in Ontario it's got to do with the introduction of the HST as well.

I've been Haligonian for the last few years where food is always way more expensive than Toronto. 

Also, groceries except for junk food are exempt from HST which is awesome.

[gpw11]

Yeah, it seems strange, but 2009 was deflationary....at least in North America.  I believe Ren's right as to the causes (reduced energy prices), but overall 2009 was on average deflationary compaired to 2008. Purchasing power may be completely different. As he said, it was a small ammount, but that's also a good thing.  Deflation is actually pretty undesirable. 

I also see what you're saying Ren and pretty much agree, but keep in mind that airline seats often fluctuate and people are used to it.