Food price inflation outpaced C.P.I. 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 U.S. 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 (C.P.I.) up almost 20% for the period, only transportation costs and medical care have risen faster than food prices since 2006, the U.S.D.A. said.

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

The U.S.D.A. 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 C.P.I. ranged from a minimum 0.8% gain in 2010 to a 5.5% jump in 2008. This highly variable price pattern has translated to an average increase in yearly food inflation above the 2% to 3% annual level that held from 1990 through 2005, the U.S.D.A. said.

The U.S.D.A. pointed out that “a number of the macroeconomic inflationary factors have been specific to food prices. This effect was largely due to rising U.S. 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 U.S. exports to Southeast Asia, Africa, and South America.”

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

The U.S. Bureau of Labor Statistics keeps track of the C.P.I. 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 C.P.I. falling by 11% while the medical care C.P.I. increased by 60%. Food-price inflation tracked the overall price inflation rate of 35% 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 U.S.D.A. said.
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