The Cost of Rising Commodities on the Consumer

 |  Includes: DBC, DJP, GCC, GSG
by: Bespoke Investment Group

With $85 providing nothing in the way of resistance, the price of oil is up sharply today and trading above $86. While commodity traders who are long are loving the rise in oil prices, consumers aren't nearly as ebullient, especially ahead of the Summer driving season. To them, higher prices mean more pain at the pump, and in their wallets.

In the chart below we have calculated the cumulative daily price change of the major food and energy commodities in the CRB index (Corn, Soy, Wheat, Cattle, Hogs, Oil and Natural Gas) since the beginning of 2008. We then multiplied the changes by the annual per capita consumption of each item. When the line is in the red zone, commodity prices are acting as a tax on consumers, while the green shading indicates that lower commodity prices are providing a 'rebate' for consumers. While this method may oversimplify the actual costs, it provides a good idea of how changes in commodity prices have impacted consumers' wallets over the last 18 months.

As shown in the chart, from the beginning of 2008 through the Summer of 2008, rising commodity prices became an overwheming tax on consumers. At the peak in commodity prices, the average American was being taxed $4.77 more per day due to rising prices than they were at the start of 2008. For a family of four, this works out to more than $19 a day, or just under $7,000 per year. As commodity prices declined, the tax of commodities eventually turned into a rebate of $4.99 per day by early 2009. So within the span of a year, a $7K annualized tax turned into an annualized rebate of more than $7K.

Since March 2009, commodity prices have once again been rising, although the increase has been more gradual. In the process, though, the rebate has been slowing dwindling away. Commodity prices are still having a positive impact compared to where they were at the start of 2008, but much less so than they have been at other points in the last year. As of today, the average impact on the consumer is still a rebate of $1.35 per day, which works out to $5.40 for a family of four and just under $2K per year on an annualized basis. It's not $7K, but consumers will still take whatever they can get.

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