CPI at Breakfast: Coffee Talk

By Brad Zigler

Real-time Monetary Inflation (per annum): 8.3%

If you think the past is prologue to the future and you subscribe to the notion of market inertia, this month's Consumer Price Index [CPI] release should have lit up your flashing "disinflation" beacon. The U.S. Bureau of Labor Statistics says that consumer prices, in general, were flat in April, following a 0.1% decline in March.

Year-over-year, the government agency says prices for a market basket of goods and services declined 0.7%, the second back-to-back negative reading following March's 0.4% decline.

Once again, the driving forces for the CPI trend were the highly volatile food and energy segments. Factoring out these goods, so-called "core" inflation actually rose 0.3% in April, a notch higher than March's 0.2% increase.

Through April, the year-over-year decline in energy prices amounted to -25.3%, fostered in part by price decreases in each of the last three reported months. Food was a different story. Though the last three months registered modest price declines, the year-over-year rate of inflation for food is positive at 3.3%.

Broadly, only the transportation sector, which includes energy prices, has declined over the 12- month period ending in April. Prices have risen in all the other sectors, including food and beverage, housing, apparel, medical care, recreation and education.

Your breakfast shouldn't be spoiled by such news, though. You might, in fact, take comfort in noting that breakfast items bucked the trend reversal noted in yesterday's Producer Price Index [PPI] release (see "Producer Prices Led Higher By Food Costs").

Our monthly Breakfast Index showed the cost of the average commodity declined 3.6% over the last quarter. These price trends don't yet reflect the resurgence in commodity prices that began in earnest this month.

April Breakfast Index

Commodity	Contract Month	02-Feb-09 Price	30-Apr-09 Price	3-Month Change	Annualized Change
Sugar #11	July ‘09	13.14 ¢/lb	14.36 ¢/lb	9.3%	42.2%
Orange Juice	July ‘09	79.90 ¢/lb	83.25 ¢/lb	4.4%	18.8%
Butter, AA	May ‘09	125.00 ¢/lb	123.00 ¢/lb	-1.6%	-6.2%
Milk, Class III	May ‘09	$11.45/cwt	$10.08/cwt	-3.2%	-12.2%
Coffee	July ‘09	123.00 ¢/lb	115.90 ¢/lb	-5.8%	-21.0%
Wheat	July ‘09	$5.8600/bu	$5.3650/bu	-8.4%	-29.5%
Pork Bellies (Bacon)	July ‘09	83.700 ¢/lb	75.125 ¢/lb	-10.2%	-34.9%
Cocoa	July ‘09	$2,731/tonne	$2,375/tonne	-13.0%	-42.5%
Average				-3.6%	-10.7%
bu = bushel; tonne = metric ton (2,200 lbs); cwt = hundredweight (100 lbs)

One of our breakfast items - coffee - is now, in fact, in a seasonal uptrend. Late last month, we pointed out the possibility of an 8- or 9-cent hike in July coffee prices (see "A (JO)lt Of Morning Coffee").

When the article was published, the contract was changing hands just shy of $1.18 a pound. Yesterday, July coffee finished at $1.28.

There may yet be more bullish prospects for coffee, so enjoy that cup of joe while it's still cheap.