Friday, July 3, 2009

The Debts of the Spenders: Falling Food Prices Are Further Proof of Deflation

Inflation bugs love to tote rising energy and food prices as 2 items that stick out from the US government's reports on inflation. That was true at this time last year. However, falling food prices indicate that their argument has not kept up w/the times. Food prices at the retail level have fallen for 3 straight quarters - or roughly ever since Lehman Brothers imploded last September. Energy prices have also fallen since the 2008 high of crude $145/barrel.

US Food Prices Trend Lower For Third Consecutive Quarter-AFBF

Retail prices for food products at U.S. supermarkets declined slightly for a third consecutive quarter, according to the latest American Farm Bureau Federation Market basket Survey conducted in May.

The AFBF’s informal survey showed the total cost of 16 food items that can be used to prepare a meal was $46.29, down about $1.12, or 2%, from the first quarter of 2009. Of the 16 items surveyed, 10 decreased, five increased and one remained the same in average price compared
with the prior quarter.

Items whose prices declined the most included Russet potatoes, boneless chicken breasts, eggs, sliced deli ham and whole milk, and these accounted for most of the decrease in the average price of the overall marketbasket. Also lower in price were ground chuck, down 12 cents; sirloin
tip roast, down 11 cents; flour, down 9 cents for a five-pound bag; bacon, down 7 cents per pound; and toasted oat cereal, down 5 cents for a nine-ounce box.

“The quarter-to-quarter price decline reported by our volunteer shoppers indicates that consumers are seeing some relief at the grocery store. Even more significant is that average retail prices for eggs, milk, chicken breasts and bacon for the second quarter of 2009 are significantly lower than one year ago,” said AFBF economist Jim Sartwelle.

Overall, the average price for the market basket of foods declined $3.10 or about 6% over a year’s time. Retail egg prices dropped 26%, milk decreased 22% chicken declined 19% and bacon was 11% lower compared with a year ago, the survey showed.

Industry analysts said lower costs for energy and feed grains, compared with a year ago, are among the key factors contributing to the reduction in retail food prices. The foods that declined the most in price are among the least-processed items in the marketbasket, the release said.

“AFBF’s second quarter market basket survey tracks closely with the federal government’s May 2009 Consumer Price Index report for all food, which showed a slight decline of -0.2% for the fourth consecutive month.”

As retail grocery prices have increased gradually over time, the share of the average food dollar that America’s farm and ranch families receive has dropped, AFBF said. “Starting in the mid-1970s, farmers received about one-third of consumer retail food expenditures for food eaten at home and away from home, on average. That figure has decreased steadily over
time and is now just 19%, according to Agriculture Department statistics,” Sartwelle said.

Using the “food at home and away from home” percentage across-the-board, the farmer’s share of this quarter’s $46.29 market basket would be $8.80. AFBF, the nation’s largest general
farm organization, has been conducting the informal quarterly market basket survey of retail food price trends since 1989.

Source: CME News For Tomorrow
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