Producer and Consumer Prices Accelerate in March
Wednesday, April 20th, 2011
Commodity prices have appreciated significantly in recent months and this is starting to filter through into the retail prices paid by US consumers. While the overall consumer price inflation appears to be contained, food and particularly energy prices have been accelerating at the fastest pace in more than two years.
Overall US consumer prices in March were up 0.5% from the previous month and 2.7% higher than a year ago. Food price inflation was up 2.9% while energy prices rose 15.5% compared to March 2010. There is always talk about higher interest rates in the horizon but at the moment most analysts think that the FED will keep rates unchanged through the end of 2011.
There is also plenty of debate about the effectiveness of the current accommodative FED policy and the threat of high inflation. For the FED, however, this is likely the debate they are willing to have since the prospects of deflation posed a much more intractable threat, and one that for the moment appears to have receded. When raising prices, retailers seek to strike a delicate balance between responding to cost pressures while at the same time maintaining their customer base.
For some commodities, it takes a very short time for retail prices to reflect the higher prices on the producer side. In March, the Producer Price Index (PPI) for fuel and related items was up 16.9% from the previous year while the CPI for fuel and energy rose 15.5%. Food prices, however, were up 2.9% in March even though the PPI index for farm products rose 23.1% compared to a year ago.
Part of the reason why retail food prices have not increased more is that food raw materials make up only a portion, and often a small portion, of the overall retail price. There are significant packaging, marketing, and other costs that have not appreciated as much. Indeed, paper and plastic producer prices, appreciated at a much slower pace in March.
But even if overall food prices have not increased as rapidly as commodity prices (some would argue that it all depends on how you measure things), prices for meat protein at the retail case show some divergent trends. The March 2011 CPI for beef and veal products rose 2.3% from the previous month and it is currently 12.2% higher than a year ago. This is the biggest year over year increase is the beef and veal CPI since September 2004. Pork prices at retail also have increased sharply.
The pork CPI in March rose 1.4% from the previous month and was 11.2% higher than in March 2010. But as red meat prices at retail have increased in double digits, poultry prices so far remain muted. The overall poultry CPI in March was 0.2% lower than the previous month and it is just 2.2% higher than a yearago. The CPI for chicken parts rose 1.7% compared to 2010 and the index of other poultry prices, including turkey, rose 4.7%.
The Daily Livestock Report by Steve Meyer and Len Steiner