Food and Inflation

Inflation can be a bit of an esoteric concept. There are the oddities of calculating shelter, and it being nearly completely disconnected from housing prices. There are “trimmed-mean” indices that remove highly volatile components in an attempt to find a true underlying inflationary trend. Not to mention, “core” CPI that strips out food and energy costs. 

But when it comes down to it, the most recognizable inflation is gasoline and groceries.  There are few prices posted on giant signs, and there are few things bought with more frequency than groceries. While economists may ignore them, people and politicians do not. 

The War in Ukraine has pushed some foodstuff prices higher – particularly wheat and corn. Russia and Ukraine are large exporters of both critical commodities, and the  price hikes have already begun to cause havoc in global markets. Sri Lanka and Pakistan have already experienced political upheaval. There will be more as the Ukraine conflict wears on and global supplies are strained. 

In the immediate aftermath of Covid, searches pertaining to food prices and coupons plummeted. But, as the cost of groceries increased in early 2022, searches for both prices and coupons surged. Unsurprisingly, the two tend to move together, and they are a good indication of the mentality of consumer. 

Not only is the rent too high; so are the groceries. 

And the price increases are not contained to corn or wheat. Meat prices are also surging. The price of corn and other animal feed certainly does not help. But there are broader issues for meat as well. Namely, a shortage of labor is affecting the ability of food companies to deliver their products to shelves. Labor shortages are a theme across numerous industries, and food is no different. 

Again, the price surges began with the March 2020 onset of Covid restrictions. Even with the exemptions for meat processing during the lockdown, the ability to get product to market was hampered by periodic outbreaks of Covid at the facilities. Those issues abated, and evolved into the current shortage of labor, and prices have returned to their Covid peaks or higher (chicken). 

While the SPR release can affect the price of oil on the margin, there is little “surge” ability in the food supply chain. The elevated costs at the grocery store may be more persistent than appreciated. 

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