Seeking Alpha
Research analyst, tech, micro-cap, contrarian
Profile| Send Message|
( followers)  

Skyrocketing. Surging. Spiking. Take your pick. Because they’ve all been used to characterize price trends for something we can’t live without: food. It’s all a bunch of baloney, though. (Sorry, I couldn’t resist.)

And seeing that it’s Myth-Busting Monday – the one day of the week we dedicate to challenging Wall Street and the world’s most cherished conventional wisdom – I’m going to prove it to you, too. So let’s get to it…

Stop Pounding the Inflation Drum, Already!

Forget months. For years, we’ve been told that the ultimate consequence of Fed Chairman Ben Bernanke’s out-of-control money printing is going to be nasty inflation. Well, I’m still waiting.

The latest Consumer Price Index (CPI) reading actually fell 0.2% in March. Of course, everyday Americans don’t pay attention to the CPI. I’m sure countless people would say that it must be a spin-off of CBS’ wildly popular CSI series. (Go ahead. Ask someone on the street.)

One thing Americans do pay attention to, though, is the final tally at the grocery store checkout. At the first hint of an increase, their minds immediately associate it with the inflation that we’ve been warned to expect – over and over and over again. And those fears are only emboldened when we hear perfectly intelligent people make misleading comments.

Like Nick Colas, Chief Market Strategist at ConvergEx Group. He said, “The things that people most commonly shop for are increasing in price much more quickly than that CPI basket inflation number we’re used to seeing.” As evidence, he pointed to the recent spike in lettuce and apple prices by 24% and 11%, respectively. Come on, Nick. That’s not the whole truth, and you know it.

While certain food prices might be rising right now, that’s only a snapshot in time. Ultimately, his analysis ignores a trend that’s been playing out for decades.

The Real Story About Food Prices in America

You see, when we go back 30 years, food prices are actually going down, not up. That is, unless you’re on some super-specialized vegetarian diet and only eat peppers and grapefruit. (See below.)

(click to enlarge)

Now, let’s change our focus from the cost of individual food items to the total amount of money the average American spends on groceries. You guessed it. It’s going down, too.

(click to enlarge)

In the early 1950s, the average American spent roughly 20% of their income on groceries. In 1982, they spent roughly 13%. And last year, they spent less than 9%. Plus, if we back out the amount of food we waste – roughly $1.07 per day, according to research found in the journal Food Policy – that number would be less than 8%.

The decline certainly doesn’t come from Americans eating less, either. (Just check the latest obesity statistics for proof.) In reality, on a percentage of income basis, we actually spend less on food than any other country in the world. The French spend twice as much, while people in India spend four times as much. How can that possibly be? Technology, baby!

As Walter Falcon, a Stanford economist who specializes in the food industry, told NPR, “We’ve seen major restructuring in [the] poultry, pork and beef industries that has allowed efficiencies and brought down the cost.” Or, as Dr. Mark Perry of American Enterprise Institute points out, new machines and technology have made it much cheaper to produce food. For example, a single Herr potato chip factory in Pennsylvania can now produce five to six tons of potato chips per hour. In the 1940s, it could only produce five to 10 pounds per hour.

Bottom line: When we’ve been told ad nauseam that inflation is imminent, it’s only natural for us to interpret any increase at the grocery store as a shocking indicator that it’s finally arrived. Again, total baloney. Based on the data, food price inflation is nothing but another (busted) myth.

Source: Debunking The Food Inflation Myth In 2 Charts