Inflation's Sweet Side

By Brad Zigler

Real-time Inflation Indicator (per annum): 7.6%

There's apparently a sweet side to inflation. So says our tabletop measure of household inflation-to-come, the Breakfast Index. More about that in a minute.

This morning's Consumer Price Index [CPI] release for February showed a half-percent monthly increase and an annual hike of 0.2%. CPI was flat, on an annualized basis, in January.

Take out the volatile food and energy segments – leaving the co-called "core" inflation rate – and you get a 0.2% price rise in February, the same as January's increase.

An 8.3% hike in gasoline prices accounted for most of the CPI uptick, swamping a contemporaneous 0.1% downturn in food costs. Food at home, in particular, cheapened 0.4% in February, led by declines in dairy prices.

Last month, our Breakfast Index tipped you to the upcoming decline in milk prices. Over the three-month period ending in January, wholesale milk prices plummeted 34.1%. This month's index shows milk's price decline rolling forward into February at a more moderate rate.

Only two breakfast items increased over the past quarter: cocoa and last month's price leader, sugar. The sweet stuff rose at a 4.5% quarterly rate through January. In February, sugar's upward price trajectory accelerated to an 11.5% rate.

Breakfast Index - February ‘09

Commodity	Contract Month	01-Dec-08 Price	27-Feb-09 Price	3-Month Change	Annualized Change
Sugar #11	May ‘09	12.31 ¢/lb	13.73 ¢/lb	11.5%	54.2%
Cocoa	May ‘09	$2,276/tonne	$2,413/tonne	6.0%	26.1%
Wheat	May ‘09	$5.4150/bu	$5.2150/bu	-3.7%	-13.9%
Coffee	May ‘09	118.45 ¢/lb	111.90 ¢/lb	-5.5%	-20.2%
Orange Juice	May ‘09	80.95 ¢/lb	69.95 ¢/lb	-13.6%	-44.0%
Pork Bellies (Bacon)	March ‘09	90.500 ¢/lb	77.700 ¢/lb	-14.1%	-45.4%
Butter, AA	March ‘09	145.00 ¢/lb	116.00 ¢/lb	-20.0%	-58.7%
Milk, Class III	March ‘09	$14.13/cwt	$10.23/cwt	-27.6%	-72.2%
Average				-8.4%	-21.8%
bu = bushel; tonne = metric ton (2,200 lbs); cwt = hundredweight (100 lbs)

Sugar and cocoa bulls, of course, can trade NYBOT/ICE futures. Securities investors can get unadulterated soft commodity exposure through exchange-traded notes issued by Barclays Bank plc. The iPath Dow Jones-AIG Sugar ETN (NYSE Arca: SGG) climbed 13.7% in February while the iPath Dow Jones-AIG Cocoa ETN (NYSE Arca: NIB) slipped 7.1%.

Comments

[BxCapricorn:]

You pay a little more for your breakfast, but when you refinance your home at a lower rate, it comes out a wash (hopefully). House is worth more, but your consumables cost more. Stocks may rise, but the money they generate has less buying power. It's endless, isn't it, which is why I clip coupons from my Sunday newspaper, and drive my car backwards, everywhere I go.

Mar 18 07:11 PM

[Gedankonomist:]

Inflation is sort of like the lottery. It is a tax on the stupid.

Mar 19 05:56 PM