Drought, disease and cold weather are leading to surging food prices in the U.S.
A new report from FactSet Insight dated July 15th highlights the dramatic increase in food inflation over the last few months. Although the report suggests that most of the current food inflation is caused by seasonal or cyclical rather than macroeconomic factors, it is still a serious issue to policymakers as higher food prices have a negative impact on consumer confidence via their disproportionate impact on lower income families.
Headline U.S CPI inflation remains low by historical standards. In May, the total CPI inflation was 2.1% year-over-year, while core inflation (which excludes food and energy) was a tad lower at 2.0%. Inflation appears even less threatening if you look at the Fed’s price index of choice, the PCE price index — total PCE inflation was just 1.8% year-over-year as of May, relative to a mere 1.5% for the core index.
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The FactSet report highlights that a “confluence of weather- and disease-induced shortages is largely to blame for the surging food prices.” They point to years of record drought in the western U.S. having forced cattle ranchers to cull their herds, dramatically boosting beef and veal prices.
Moreover, the U.S. Department of Agriculture’s (USDA) June 2014 Livestock, Dairy, and Poultry Outlook states that “consumers face record or near-record retail beef prices at the meat counter.” Experts say that even if rain does come, it will likely take several years for herd levels to recover, so consumers are probably looking at high beef prices for at least two or three years.
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http://www.valuewalk.com/2014/07/food-prices-outpacing-overall-inflation-rate/
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