On Rising Food Prices and Low Inflation

Last week, NPR had a fine, short piece on the disconnect between consumer’s very real observations of rising food prices and economist’s less than comforting assertions about low inflation.

Economists track inflation through the Consumer Price Index which looks at a basket of goods that tend to have stable prices to screen out volatility. At 2.1 percent it is currently well below the historic average of 3.2 percent. This is the rate for things like TVs, phones and refrigerators. What it doesn’t look at is two of the categories that consumers are the most sensitive to: food and fuel.

Marilyn Geewax does a fine job explaining why food costs are up well above the 2.1 percent rate of inflation, namely the impact of three years of drought on cattle stocks and the PED virus that has been worrying the nation’s pork supply.

I think, however that a finer point needs to be put on the matter. Inflation is a very specific term for economists and it is a form of rising prices, but it is not synonymous with rising prices and that is something that is not very well understood. In fact, I know people with degrees in economics that can’t seem to keep the difference between inflation and rising costs straight. What economists are looking at when they look at inflation is signs of ‘too much money chasing too few goods’. It’s a money supply problem. Too much money in circulation, interest rates too low, employment levels too high, factors like that. What it isn’t is a measure of increased costs and stresses in supply chains. Three years of drought reducing winnowing cattle stocks. Natural gas shipments displacing grain shipments in Canada. The PED virus cutting pork stocks. Those are all reasons that food and fuel costs can go up, but they don’t constitute inflation.

Go back to the two posts we did on the price of oats coming from Canada. I looked at the impact of a tough winter and Canadian oat farmer Ron Rein explained the impact of rail policy in Canada. It was stresses in the supply chain that were causing oat prices to rise, not inflation. Cold comfort, but worth understanding the difference. If only so that you don’t throw your cereal bowl at the radio when they announce that inflation is still low. You wouldn’t want to waste that milk. It’s getting expensive.

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About Marc Brazeau

Free lance cultural attaché. Writing at REALFOOD.ORG.

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