CPI lagged food price inflation from 2006-12

by Laura Lloyd
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WASHINGTON — Food price increases have outpaced most other components of consumer demand in the 2006-12 period, the US Department of Agriculture said in its August issue of Amber Waves, the result of a notable increase in the volatility of food and energy commodities prices and other macroeconomic factors.
With the all-food Consumer Price Index (CPI) up almost 20 percent for the period, only transportation costs and medical care have risen faster than food prices since 2006, the USDA said.

Food expenditures as a percentage of disposable personal income have consistently followed a downward trajectory since the 1930s, when food consumed about 25 percent of disposable income, to current levels hovering slightly below 10 percent. Economic developments since 2006, though, have made for volatile increases in food price inflation. During the 2006-2012 period, the all-food CPI climbed nearly 20 percent — or an average of 3.3 percent annually — much faster than the all-items CPI, which rose only 14 percent over the same six years, the USDA said.

The USDA said food prices have been rising faster than prior to 2006 years because of a number of interrelated factors: spikes in food and energy prices at the commodity level, major weather events, global commodity-market shocks and the Great Recession, which began in 2008 in the United States, and has been followed by an anemic recovery.

As a result, annual changes in the all-food CPI ranged from a minimum 0.8 percent gain in 2010 to a 5.5 percent jump in 2008. This highly variable price pattern has translated to an average increase in yearly food inflation above the 2 percent to 3 percent annual level that held from 1990 through 2005, the USDA said.

The USDA pointed out that “a number of the macroeconomic inflationary factors have been specific to food prices. This effect was largely due to rising US farm prices for corn, wheat, soybeans, and other commodities. A number of factors triggered the price increases, including weather events that reduced output and storage levels, increased production of corn-based ethanol, and sharply increased US exports to Southeast Asia, Africa, and South America.”

The USDA said food costs as a percentage of consumer income had been falling for decades before flattening at about 10 percent for the last decade. But that percentage has crept up since 2008, when Americans spent 9.5 percent of their incomes on food, to 2011, when the total rose to 9.8 percent of disposable income. The increase was the result of gains in food prices coupled with stagnant or falling incomes for many Americans, the USDA said.

The US Bureau of Labor Statistics keeps track of the CPI in seven major consumer spending categories: food, apparel, transportation, medical care, education and recreation. From 1993 to 2005, inflation rates for the seven components have varied considerably, with the apparel CPI falling by 11 percent while the medical care CPI increased by 60 percent. Food-price inflation tracked the overall price inflation rate of 35 percent over the 12-year period before greater volatility in food-price inflation starting in 2006 created a pattern of faster gains in that sector, the USDA said.
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