Refuting The False Claim At The Federalist That 'Food Inflation Blows Away Wage Growth.' It's Just Not True

by: Mark J. Perry

Both Sean Davis and Ben Domenech at the web magazine The Federalist have used the chart above in their recent posts about food inflation here and here. As the title of the chart implies, Davis and Domenech are both claiming that "food inflation has blown away wage growth" since the end of the recession in June 2009.

But there's a problem with that claim. Sure, certain food groups might have gone up in price over the last five years by more than the increase in average hourly wages. But a more realistic representation of what's happened since June 2009 is shown in the chart below.

The blue line in the chart shows the 11% increase since June 2009 in the broadest CPI food category "Food and Beverages," which is one of the eight major CPI groups according to the BLS, and includes (among hundreds of other items that cover all food and beverage groups): breakfast cereal, milk, coffee, chicken, wine, full service meals, and snacks (Note: This is a sample, not an exhaustive list). It should be noted in any discussion about food prices that "food away from home" is almost 50% of total food spending for Americans, according to the most recent USDA data (see Table 10). Therefore, I'm using the most comprehensive measure of food and beverage prices, which would most accurately reflect the prices of food for the typical American household. Using different CPI measures doesn't change the analysis much - the "CPI-Food" has increased 11.3%, "CPI-Food Away from Home" has increased the same 11.3%, and "CPI-Food at Home" increased 11.36%.

Here's the key point - over the last six years, the BLS wage series "Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private" has increased by 10.8% from $18.57 to $20.58 per hour (see red line in chart). Therefore, the broadest measure of food and beverage prices has increased by only slightly more (11%) than the increase in average hourly earnings (10.8%). Food inflation is not "blowing away wage growth" - it's basically almost exactly matching it! The BLS wage series used here starts in 1964 and is the measure of hourly earnings used most frequently for historical analysis, given its 50-year history. A more recent measure of hourly earnings was introduced by the BLS in 2006 - "Total Private Average Hourly Earnings of All Employees: Total Private" - and that measure has shown a slightly lower increase in hourly wages since June 2009 of 10.4%, but is still just slightly below the 11% increase in food prices, and provides no statistical support for the claim that "food inflation blows away wage growth."

Update: On an average annual compounded basis, wages have grown at a rate of 2.08% per year, just slightly less than the 2.11% annual compound growth in food prices. That 0.03% difference per year (1/33 of 1 percent) is negligible and provides no evidence that "food inflation blows away wage growth."

Even more important than comparing wage growth to only one major CPI group (food and beverages), the chart above shows that overall consumer price inflation (CPI - All Items) has increased by 10.6% (see brown line in chart), which is slightly below the 10.8% increase in hourly earnings, meaning that there has been a slight increase in real, inflation-adjusted earnings since June 2009. Using the other measure of hourly earnings would indicate a slight decrease in real hourly earnings.

Bottom Line: Over the last five years, consumer prices, food prices and hourly earnings have all increased at almost exactly the same rate, and there is absolutely no statistical support for the outrageous claim that "food inflation blows away wage growth." None.