The folks at Unilever would have slipped it right past me if they hadn’t subtly changed the shape of their Skippy peanut butter jar.
As I reached into the fridge to slather the kids’ morning waffles the other day, I couldn’t help noticing subtle new ridges at the top and bottom of the jar.
Intrigued, I started reading the fine print.
Hmmm. Net weight: 15 ounces. The jar from the previous week: 16.3 ounces. Percentage change: 7.98 percent.
Foodflation takes multiple forms. Prices increase. Package sizes decrease. Either way, you pay.
There is nothing terribly new in this. It happens in every inflationary cycle. But it sure feels like we’re being nickeled and dimed at every turn these days, pinching every household that dares to eat.
The U.S. consumer cost of food in February was 4.6 percent higher than a year earlier, higher than overall consumer inflation of 4 percent and twice the laughable 2.3 percent “core” rate that excludes food and energy — as if we don’t eat, move, or light and heat our homes.
Food prices seem destined to head even higher as grain prices pierce the stratosphere. Corn futures are trading at about $6 a bushel. Wheat is trading at about $10 a bushel. Soybeans are above $12 a bushel.
But it’s not just grains that are driving up food prices. Crude oil reached $112 a barrel last week, and fuel prices threaten to approach $4 a gallon this driving season — making it that much more expensive to process and transport the food we eat.
Our recent bout with inflation also is fed by a persistently weak dollar, which forces us to pay more for imported goods such as crude oil. The strength of the dollar has slipped some 13 percent over the past year versus an index of foreign currencies.
While our recent run of foodflation may be crimping our consumer-driven economy, it’s becoming a matter of life and death for some people in impoverished nations around the globe.
The most troubling number of the recent days came courtesy of the International Monetary Fund, which reported that global food prices rose 83 percent over the past three years. Few things destabilize poor countries as much as massive food riots.
An acquaintance of mine has been in my ear about inflation for months at soccer games and social gatherings. He regularly travels overseas as an employee of a major multinational conglomerate, and he routinely returns with warnings about unrelenting cost pressures in countries such as China hitting our shores at any time.
Now, I’m convinced. It’s here. And I have a hunch it’s here for a while.
The recent bump in inflation comes at a particularly vexing time for the Federal Reserve, which has been cutting rates and pumping cash into the system in hopes of supporting the economy as it sags into recession.
The typical prescription for inflation is tighter money, not looser. So the Fed is facing the prospect of feeding inflation in the short term to spur economy growth, only to reverse course with sharply higher interest rates later to stem inflation.
So, how does the average household react to the recent surge in foodflation? Shift discretionary spending — assuming you’re lucky enough to have some — from other things into the food budget. Go out to eat less. Buy down the food chain, whether at restaurants or the neighborhood grocery. Buy more stuff in bulk from discount warehouse stores. Or stop being so gluttonous in general.
Here’s another option for lucky folks with a little extra jingle in the pocket — invest in a seemingly intractable problem.
I suspect that prices in some links in the food and energy commodity chain are a little bubblier than justified by pure supply and demand, and may be the next area to be repriced lower to get some speculation out of the marketplace. But I am convinced that we have entered an era defined in part by elevated prices for food and energy.
It’s something for investors to keep an eye on this earnings season. Last week, for example, Wal-Mart and Costco reported stronger-than-expected March sales, as more folks appeared to slide down the retail chain toward discounters. Monsanto recently reported extremely strong quarterly earnings as it displayed stronger volume and pricing power in selling supplies to farmers.
Bottom line: Inflation is back. The era of cheap food may be over, perhaps permanently. And it will have broad economic effects for consumers and businesses.
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