Food Inflation Vs. Oil Inflation

Listening to farmers and farm lobbyists and congressmen from farming states and ethanol producers and ethanol environmentalists and food companies - you’ll often hear claims that the massive increase in food prices (especially corn) is mostly due to the rise in oil / energy costs. It’s easier to blame “big oil” than “big food”. Big Food? How about “little food” like those poor farmers? Regardless of whom you want to blame, food and oil are obviously rising quickly.

I am still waiting for when Senator Durbin (D-IL) is going to call a congressional hearing to investigate the high price of food and call in the biggest food company execs and ask them what their CEO salaries are and then ask them whether they realize that people are starving or maybe he’ll drag in the “speculators” that must be driving up prices in the agricultural commodities pits. HMMMM!?! Haven’t heard much of that and since Senator Durbin is from a Midwestern state that happens to grow a lot of food and produce ethanol, I am betting you won’t hear him going after food inflation. Instead, let’s just blame everything on the oil industry and oil industry speculators while ignoring food inflation or basic material inflation. And despite the fact that (on average) American households spend about 13% of their income on food and 4% on transportation fuel, the American consumer seems to complain more about a $15 increase in their tank of gas than a $15 (or more) increase in their grocery cart.

Maybe that will change. Let’s go with the concept that oil is a bubble and that once the politicos shame and threaten the oil industry enough, that oil will drop back to the $80 per barrel level and gas will be about $2.25 per gallon. Remember that I am playing the devil’s advocate role here and don’t believe we will see those prices any time soon. Anyway….if oil is the primary culprit for food inflation…. then if oil declines 40%, what will the food inflation blameshifters experts say food prices should decline to in response to lower oil? I doubt food prices will decline - they are sticky. We’d hear about the terrible flooding this spring and the high costs of oil when the fields were planted or when the foods were processed or any number of reasons why food prices are justifiably high.

As much as the Fed wants to manage inflation expectations with their speeches, my expectations are based upon reality. I expect food inflation with or without oil inflation.

Comments

[Harmsdap]

I wish you would have cited the rate of food inflation in comparison to the rate that gas prices have gone up. While our food items are only going up cents at a time at a rate only a few percent while gas prices have doubled in the same amount of time.