Producer Price Food Inflation: Crude vs. Consumer Goods

by: Mark J. Perry

The chart above shows the annual inflation rates for: a) crude foodstuffs and feedstuffs (e.g. wheat, corn, animals for slaughter, peanuts, cottonseed, and soybeans), and b) finished consumer foods (pasta products, processed meats, bakery products, fresh fruits and vegetables, tree nuts, and eggs), based on today's BLS report on Producer Price Indexes through January.

It's interesting to note the following:

1. Inflation for crude foodstuffs and feedstuffs is much more volatile (monthly standard deviation of almost 14% over the last ten years) than inflation for finished consumer foods (standard deviation of 3%).

2. Double-digit inflation (or deflation) rates in crude food items (like we've had for the last 7 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products.

3. The current 12-month inflation rate for finished consumer foods in January of 3.8% is only slightly higher than the 3% average over the last ten years, and is lower than six of the months over the last year, e.g. 4% for November, 4.6% for September, 5.7% May, 6.6% March, etc.

4. The average inflation rate for finished consumer foods over the last 12 months of 3.9% is lower than the 6.7% average from 2007-2008.

Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, but no signs yet of rising consumer food inflation (1.5% CPI food inflation through December 2010).