Inflation snapshots: December 2009

[dbarberic]

Re: Inflation snapshots: December 2009

Keeping it fresh... any more updates?

[Rajiv]

Re: Inflation snapshots: December 2009

I just have deflationary events, not inflationary

5lb bag of potatoes $0.75
10lb bag of potatoes $1.25

First time I have seen that low a price in over 20 years in the SF Bay Area

[ggirod]

Re: Inflation snapshots: December 2009

Gas here typically rises 20+ cents Memorial Day. This year it dropped 20 cents. Food prices are stable or lower. I have lost track of some produce prices as I am becoming a locavore and minimize distant produce. Potatoes have been very cheap here for a few months now. Sale prices (like on Triscuit or other expensive items) start and then don't end. It has been several months since I have seen price increases except for volatile items like meats. Even pork and chicken are stable to cheaper.

In the possibly inflation arena (I think it is simple profit taking), cheap pizzas that used to have all cheese are now cheese substitute. It was a quiet premeditated transition in which the "Real" logo gradually disappeared and a few months later so did the cheese. Soon the race to the bottom will mean a minority of pizzas will have real cheese.

It seems that demand is dropping. With unemployment looking pretty permanent, former 99'ers have to be pulling in their belts, and then the people looking at their last quarter or 6 months of benefits have to be giving serious thought to the idea ... and then when they mention to their friends that they are cutting back do their friends follow suit? I don't think it's really deflation yet, but the pulse of the economy is getting a bit thready.

[raja]

Re: Inflation snapshots: December 2009

High unemploymentl -- and the growing realization that the economic crisis will not be short term -- results in people spending less money into the economy.
In response, businesses engage in deceptive cost-cutting practices like substitution of lower quality ingredients and smaller package size in order to maintain profit levels.

While it's true that the customer is paying more for a lesser product, which means the price of the product is inflating, actually the sellers' cost-cutting tactics are in response to less dollars being spent, i.e., deflation.

[Rajiv]

Re: Inflation snapshots: December 2009

In response, businesses engage in deceptive cost-cutting practices like substitution of lower quality ingredients and smaller package size in order to maintain profit levels.

Look 5lb/10lb bags of potatoes are still 5lb/10lb bag of potatoes -- that doesn't fit into your thesis.

[ggirod]

Re: Inflation snapshots: December 2009

Look 5lb/10lb bags of potatoes are still 5lb/10lb bag of potatoes -- that doesn't fit into your thesis.

I think he is commenting on my pizza, not our cheaper potatoes. I think the pizza was just opportunistic substitution, and would position them well to drop prices later if they had cheaper ingredients (which is what he was saying, I think).

Once they messed with my cheap pizzas I started making my own, but few probably followed in my footsteps.

[c1ue]

Re: Inflation snapshots: December 2009

5lb bag of potatoes $0.75
10lb bag of potatoes $1.25

First time I have seen that low a price in over 20 years in the SF Bay Area

I've seen them too - but note that the not-sale prices are ridiculously high.

We're talking baby potatoes over a dollar a pound when not on sale. Similarly the 10 pound bags of potatoes that aren't the ones on sale (i.e. green and about to sprout) are $4 or $5 (or more).

Similarly I've noticed the pasta containers - it used to be only one or two varieties were 12 oz. Now almost all of them are.

My suspicion is that the forces at work are more than just local: the global economic recession might mean less US food exports, which in turn might mean lower prices for food in the US in the short term.

I've noted before the 10-high stacks of boxes of cherries marked 'For Export to Japan'.

[Rajiv]

Re: Inflation snapshots: December 2009

I've seen them too - but note that the not-sale prices are ridiculously high.

My suspicion is that the forces at work are more than just local: the global economic recession might mean less US food exports, which in turn might mean lower prices for food in the US in the short term.

I've noted before the 10-high stacks of boxes of cherries marked 'For Export to Japan'.

These were not "sale" prices I was talking about (In other words, not a "price leader") However I think you are right on the world wide recession hypothesis.

[ggirod]

Re: Inflation snapshots: December 2009

Similarly I've noticed the pasta containers - it used to be only one or two varieties were 12 oz. Now almost all of them are.

Interesting you mentioned pasta, c1ue, because it seems nationwide the boxes shrunk in a period of a month or two this past spring. Now, around here, the boxes are being sold for the same price per ounce or pound that they were before all the nonsense. In fact, here 8 oz boxes have appeared for sale at 1/2 the old pound prices. They are trying to obfuscate the situation but sly observers are not fooled. The prices started dropping in May, if I remember correctly.

My suspicion is that the forces at work are more than just local: the global economic recession might mean less US food exports, which in turn might mean lower prices for food in the US in the short term.

I sense, (and I have to admit it is just a sense, lacking formal confirmation) that some limit for prices has been reached. Maybe it is a worldwide phenomenon as c1ue says or maybe it is just US reaching a limit. I do not think it bodes well for the economy however, because I think in a little bit it is going to appear that we are entering deflation and the government will spew more stimulus. Of course, stimulus at the top never quite seems to trickle down after Wall Street takes their bonuses, but I guess that means the poom is getting just that much closer.

Admitting that the 99'ers are in a bit of a sticky wicket might focus a stimulus where it would be useful, but actually addressing the broader fact that main street is dying as Wall Street flourishes might even be better. IMHO no way, no how is the government willing to admit that this mess is out of control and hurting relative innocents. But that's OK, we have elections coming, the electorate clearly understands what is happening, and Democracy will rectify the whole situation.

[FRED]

Re: Inflation snapshots: December 2009

Look 5lb/10lb bags of potatoes are still 5lb/10lb bag of potatoes -- that doesn't fit into your thesis.

It's the iTulip thesis repeated frequently since 2008: post-bubble reflation will produce inflation that will not appear as higher nominal prices. Reflation puts a floor on commodity (input) prices to finished food products while unemployment and the credit crunch lower the purchasing power of consumers. Producers respond by reducing the quality and/or quality of "unit" of finished food goods, such a box of frozen pizza. The net impact of higher input costs and lower purchasing power of households: lower quality goods. So far the theory is holding up.

Don't expect it hold true for every type of food, however. If there's temporary glut of potatoes then prices will fall, temporarily.

[Rajiv]

Re: Inflation snapshots: December 2009

If there's temporary glut of potatoes then prices will fall, temporarily.

Fred! Give me a break! Lowest prices in over twenty years on a staple item -- and you are blaming it on a temporary glut? The cold storage industry would have rather let the potatos rot than to have the prices fall this low. Temporary gluts have occurred before, without the price dropping. Your hypothesis may need revisiting.

[FRED]

Re: Inflation snapshots: December 2009

Fred! Give me a break! Lowest prices in over twenty years on a staple item -- and you are blaming it on a temporary glut? The cold storage industry would have rather let the potatos rot than to have the prices fall this low. Temporary gluts have occurred before, without the price dropping. Your hypothesis may need revisiting.

Never generalize a specific data point.

[c1ue]

Re: Inflation snapshots: December 2009

Rajiv,

I don't see the $1.25/10 lb sacks of potatoes except as loss leaders in SF.

The cheap groceries place I go to, the normal 10 lb bag ranges from $2.99 to $3.69 except once a quarter or so when I'll see $1.49 - or this week $0.97.

But the potatoes I get from these sales sprout almost within a week.

As for a glut - I don't know about Idaho but there seems to be one on one Michigan farm anyway:

http://www.uppermichiganssource.com/...aspx?id=359560

One-hundred-twenty days after they were planted, it's time to harvest the potato field at Johnson's potato farm in Sagola.
Eleven million pounds of potatoes on 280 acres need to be harvested this fall. According to members of the family run farm, this year could be one of the best in years, second only to last year's record harvest.
"The quality is excellent," said fourth generation potato farmer, Dale Johnson. 'We may be a little bit smaller in size compared to last year, but last year was remarkable."
Johnson said the dry summer, matured the potatoes faster this year, and hardly any rain in September has put the farm ahead on their harvest schedule. They'll be done in three weeks instead of four.
Once all the potatoes are harvested, the work won't be over. For the next eight months, the potatoes need to be sorted and shipped, and that's a time intensive process.
"Every potato is seen by somebody's eyes," Johnson said, "going past them on a conveyor or grater, sorting them out. The biggest things as far as seed, is to get every rock out."
Only 30 percent of the potatoes will get bagged, shipped, and eaten. The rest will be used as seed for several Wisconsin farms.
As for the price of the potatoes, that won't be decided until mid-winter. But it's expected to go down since farmers nationwide are reporting good potato harvests.

[Rajiv]

Re: Inflation snapshots: December 2009

The cheap groceries place I go to, the normal 10 lb bag ranges from $2.99 to $3.69 except once a quarter or so when I'll see $1.49 - or this week $0.97.

The behavior you describe is standard loss leader pricing. When you say 0.97 for a 10 lb bag, this is the supermarket delibrately pricing it at cost to attract clientele to the store -- and they will advertise it.

Where I shop, they are a cost plus small margin outfit. So the prices have always been very reasonable, and are much lower on the average. I will almost never go to a store based on Loss leader advertising.

It is quite possible that the new potato harvest has been a bumper crop, and the cold storages need to make space for the new crop, and are hence trying to move the old inventory out. In the graph's posted by FRED, I did see a down turn in the May figures. However data is always lagging real time events -- the picture will become clearer in a month or two.

[FRED]

Who could have known?



They are both rolls of Northern bathroom tissue. "Big rolls." The one on the left came from a package I bought last month. The one on the right I purchased this month.

From: The Incredible Shrinking Toilet Paper Roll Rip-Off

Here’s a photo of the downsized Breyers cartons posted at consumerist.com

For as long as this ice cream lover can remember, Breyers Ice Cream was sold in half-gallon (64 ounce) cartons. First, Unilever downsized the half-gallon carton to 1.75 quarts (56 ounces), which was a 12.5% reduction. Now, they have downsized the 1.75 quart carton to 1.5 quarts (48 ounces). This means the original half-gallon carton of Breyers is now 25% smaller at 1.5 quarts. The 1.25 quart carton of Breyers Ice Cream can’t be too far away.

To make things worse, unless we’re mistaken, the price of a carton of Breyers Ice Cream has gone up while the size has shrunk. But even at the same price per carton, a 25% decrease in product equals a 33% increase in price-per-ounce. For instance, even if the cost of a carton of Breyers held steady at a hypothetical price of $4.00, you used to get 64 ounces for that $4.00. But now, you will pay $5.33 for 64 ounces (one-and-a-third cartons), a 33% price increase. Factor in the increase in the price of a carton, and you’re probably paying 40% or 50% more than you did, say, a year ago.

From: Unilever Shrinks Its Products Again: Breyers Ice Cream Now 25% Smaller!

The maker of Mars and Snickers has shrunk the size of the bestselling chocolate bars in what amounts to an under the counter price rise.
While the bars have been reduced by 7.2 per cent from 62.5g to 58g, their prices have remained the same.

From: Shrinking Mars bar: Size cut by 7.2% but price stays the same

Once upon a time “bath size” bars of soap were all five ounces. Most have now been downsized to 4.5 ounces.
The latest move, however, is to go even smaller. Dial for Men is a prime example.
*MOUSE PRINT: The 4.5 ounce bar is now 4.0 ounces — over 10% smaller

OLD NEW

So these three packs are 12 ounces instead of the old 13.5 ounces, but still priced the same.

From: Dial Soap: The Incredible Shrinking Bar