Producer Price Food Inflation: Crude (High and Volatile) vs. Consumer Goods (Low and Stable)

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 yesterday’s BLS report on Producer Price Indexes through March. I featured a similar chart back in February and it got a lot attention and comments, so this is an update.

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 (0r deflation) rates in crude food items (like we’ve had for the last 9 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 of 4.4% through March for finished consumer foods is only slightly higher than the 3% average over the last ten years (see red line above), and is lower than finished consumer food inflation last March of 6.6%

4. The average inflation rate for finished consumer foods over the last 12 months of 4.3% is lower than the 6.6% average during 2007 and the 6.8% average in 2008.

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, and food inflation of less than 3% in the U.S. through March (2.9%), which is just slightly above the average over the last decade of 2.7%.

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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