Do You Believe There is Food Price Deflation? Mish vs. Consensus

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Published : August 31st, 2016
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Category : Opinions and Analysis

Here’s the question of the day: Do you believe there is food price deflation?

The reason I ask is the Wall Street Journal reports Food Price Deflation Cheers Consumers, Hurts Farmers, Grocers and Restaurants.

The U.S. is on track this year to post the longest stretch of falling food prices in more than 50 years, a streak that is cheering shoppers at the checkout line but putting a financial strain on farmers and grocery stores.

The trend is being fueled by an excess supply of dairy products, meat, grains and other staples and less demand for many of those same products from China and elsewhere due to the strong dollar. Lower energy costs for transportation and refrigeration also are contributing to sagging food prices, say economists.

“Deflation is a godsend for consumers,” said Bob Goldin, vice chairman of food consultancy Technomic Inc.

Nationwide, the price of a gallon of whole milk on average was down 11% to $3.06 in July over a year ago; the price of a dozen large eggs fell 40% to $1.55 in the same period.

The price of food at home is down 1.6% on a seasonally unadjusted basis in the 12 months through July, says the BLS.

Stephanie Hegre, a 46-year-old nanny in Thousand Oaks, Calif., has noticed a drop of about 10% in her weekly food shopping bill. Her 16-year-old twin daughters go through a lot of milk, meat and bread, adding up to an average weekly grocery bill of about $200.

“I feel it has dropped by $20 a week which, when you’re on a budget, is noticeable,” said Ms. Hegre, who has been stockpiling staples in case prices increase. “We freeze bread and buy two weeks’ worth of bacon at a time,” she said.

The glut is so severe in some places that dairy farmers have been dumping millions of pounds of excess milk onto fields. The U.S. Department of Agriculture just bought $20 million worth of cheese in response to hard-hit dairy farmers’ requests. The cheese was given to food banks and others through USDA nutrition-assistance programs

Today’s Question

Do you believe there is food price deflation?

— Mike Shedlock (@MishGEA) August 31, 2016

The Freezer

Freezing 2 week’s worth of bacon is nothing. I freeze six months of bacon, chicken, pork chops, and even more of some items.

Moreover, bacon is no bargain at all. A decent sale price is two 16-ounce packages for $5. I have not seen that for a long time.

Yet, prices are indeed coming down. The problem is, prices are not down to where they used to be.

Beef is a prime example. The sale price for rib-eye steaks used to be $4.99. That held true for at least 10 years. Heck, I could occasionally (but rarely) get beef tenderloin at that price.

Now, rib-eye steaks on sale are $7.99 a pound.

Pork remains a general bargain. Center cut pork chops were roughly $2.49 a pound on sale for 15 years. Yes, sometimes they were cheaper. But sometimes the sale price was $2.79 or $2.99.

On sale, you can still get $2.49. Sometimes you need to buy a roast and have it cut (or cut it yourself). So … cut it yourself!

Curiously, I have seen boneless roasts at a cheaper price than bone-in. It pays to know and understand what you are getting.

Bacon seems outrageous. And you better be careful. I now see 12 ounce packages regularly.

Overall, led by beef, sales prices are indeed lower. But sales prices just are not what they used to be.

Most foods properly wrapped will last at least six months. I grew up this way. That’s how my parents shopped.

My advice: Get a bigger freezer! My food cost increases have been minimal despite huge increases in non-sale prices.

Mike “Mish” Shedlock

 

Source : mishtalk.com
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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
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You covered the burrito index, which I think is a more fair representation of actual prices that most people pay. I use the taco index, myself. When I was a kid, tacos were a quarter, or 4 for a dollar. When I was at university, it was 3 tacos for a dollar at Taco Bell.

Now they're 1 for $1.20. So, either I'm around 400 years old (to be consistent with government's claims of low inflation), OR prices are heading up. My driver's license says it'll be quite a few years before I apply for SS, and I believe that.
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You covered the burrito index, which I think is a more fair representation of actual prices that most people pay. I use the taco index, myself. When I was a kid, tacos were a quarter, or 4 for a dollar. When I was at university, it was 3 tacos for a doll  Read more
Doom - 8/31/2016 at 3:54 PM GMT
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