A Day's Wages for a Loaf of Bread

Wholesale Prices Rise on Higher Food Costs

August 17, 2010

Associated Press - Wholesale prices rose last month for the first time since March on higher costs for food, autos and pickup trucks.

Still, the increases were modest and show that the weak economy isn't spurring widespread price rises.

The Labor Department said Tuesday that the Producer Price Index, which measures price changes before they reach the consumer, rose by 0.2 percent in July, after three months of declines. The rise matched Wall Street economists' forecasts, according to a survey by Thomson Reuters.

Excluding volatile food and energy costs, so-called "core" producer prices rose by 0.3 percent in July, the ninth straight increase. Core prices have risen by 1.5 percent in the past year.

The report comes after the Labor Department said Friday that consumer prices also rose in July for the first time in four months. The two reports may ease fears that the economy is about to experience deflation, a widespread and painful drop in prices and wages. The U.S.'s last serious case of deflation was during the Great Depression.

Concerns about deflation grew after both consumer and producer prices fell for three straight months. Most economists don't believe deflation will happen. But they are watching the government's price indexes closely for any signs of it.

One big driver in higher producer prices was fresh and dry vegetables, which jumped in price by 9.8 percent, the most since March. Peas jumped by almost 81 percent, the most since October 2007. Tomatoes, which have been volatile for much of this year, soared by 68.6 percent, also the largest increase since March.

Egg prices rose in July by 19.4 percent, the biggest jump since April 2009.

Another big driver of the higher index was a 1.5 percent rise in the price of pickup trucks, SUVs, minivans and cargo vans. That was the largest increase since January.

Over the past year, producer prices have risen by 4.2 percent, above June's figure but down from this spring, when the index increased by more than 5 percent in March, April and May.

Tame inflation allows the Federal Reserve to keep the key interest rate it controls at a record low of nearly zero percent in an effort to bolster economic growth. The Fed usually fights rising inflation by raising rates.

Gas and other energy prices fell last month, the department said. That contrasts with Friday's report on consumer prices, which were driven up partly by a sharp increase in gas and other energy costs.

The contrast is largely a result of the different things the two indexes measure, a Labor Department analyst said. Prices at the gas pump rose in July, according to the consumer price index, but refiners appear to have reduced their prices at the wholesale level last month.

UK: Price of Food Up By 59% in Past Three Years

August 16, 2010

housepricecrash.co.uk - Basic food prices that have risen by as much as 59% in the past three years are hitting Welsh shoppers disproportionately hard, economists warned last night.

Staples such as bread and eggs have increased by 18% and tea by 30%, according to figures from price comparison website mySupermarket.co.uk

The cost of rice has increased by 59% since 2007.

But lower income levels here, with Welsh gross domestic product (GDP) standing at 74% of the UK average, means consumers struggle to absorb the rising prices.

Brian Morgan, professor of entrepreneurship at the University of Wales Institute, Cardiff (Uwic), said the higher level of social deprivation in Wales means many won’t have benefited from the reduction in mortgage costs seen in recent years. He said:

“If we say poorer elements of society are going to be suffering the most then, as night follows day, it follows that Wales will suffer more proportionately than people in the rest of the UK. We have the highest unemployment rate in Wales now (over 9%) and higher levels of inactivity because there are more people who are not in the workforce at all because they’re not in employment, education or training.”

The new statistics revealed it has become increasingly costly to buy meat, with the overall price of products rising by 10%.

However, there are variations, with the cost of bacon increasing by 9%, but the price of chicken and turkey dropping by 6%. Fish lovers fared better, with the price of fresh varieties down 8%.

Parents were hit particularly hard as the price of food and products for babies soared. The figures show the price of items like wipes, creams and bath wash are up 38%, baby food and snacks rose by 21% and baby milk and drinks are up 29%.

Even pets are an increasingly expensive drain on the bank account, with cat food up 13% and dog food rising by 20%.

Professor Morgan said rising oil prices mean the cost of basic commodities is likely to continue growing. He added:

“Most economists are forecasting at the moment that commodity prices will remain high for some time. Much of it comes from the fact that energy prices are going to rise by about 20% by 2015.”

The academic said food prices have also risen as a result of extreme weather patterns producing poorer harvests and the Chinese and Indian economies continuing to grow at about 10% per year.

China and India have a combined population of 2.5 billion – more than a third of the now near seven billion global figure.

MySupermarket spokesman Jonny Steel said while Consumer Price Index (CPI) inflation figure stands at 3.2%, down 0.2% on the previous month, this doesn’t represent the whole picture. He said:

“This is especially true when you consider the likes of basics such as bread and eggs increasing in cost by 18% over the last three years. Shoppers need to make sure they don’t become complacent now the recession is over, as the battle to save money is still very much on.”

Meanwhile, the dozens of wildfires raging around Moscow, unprecedented in 130 years of records, has cost Russia more than a third of its wheat crop. This has prompted the government to ban wheat exports through to the end of the year, a move that has sent soaring world grain prices to new highs.

But marketing expert Robin Croft said the price rises have caused far greater problems in developing nations than here. In Sudan the cost of sorghum (grain) increased by 40% in the year to February 2010, while in Pakistan wheat went up by 24%, according to the World Bank. Elsewhere, in Kenya maize has increased by 16% and in India wheat has gone up by 14%.

Mr Croft, of the University of Glamorgan, said:

“There’s been riots in the streets in developing nations and outbreaks of violence because people are living on the poverty line.

“We’re right to be concerned, but it’s the extent to which basic foodstuffs are actually a significant part of our total expenditure that matters.

“Where these basic commodities take up a substantial part of our disposable income is where it becomes noticeable.”

Furthermore, in the UK we eat a large proportion of processed foods and ready meals, leaving us less likely to notice that the cost of basic ingredients has risen, said Mr Croft.

The academic said British consumers are not as price driven as some of their European counterparts, particularly Germans. Mr Croft believes British consumers are less likely to be put off by higher prices in supermarkets because they assume cheaper items are of inferior quality.

“There’s this snobbishness about going to place like Aldi and Lidl, this irrational belief that because it’s cheap the quality is probably dodgy,” he said.

“The Germans don’t have any of those sort of inhibitions at all, they largely buy on price, but also on quality.”

But Cardiff University’s professor Patrick Minford suggested the CPI represents a better guide to living costs than the selected commodities in the mySupermarket.co.uk survey.

And economist Professor Minford said, at 3.2%, this indicates a far more modest price growth in the wider range of goods and services measured by the Government.

He said CPI, unlike the Retail Price Index (RPI), does not include the cost of mortgages, making it a more relevant measure as many of Wales’ poorer households would not have benefited from the falling interest rates of recent years.

Beyond food it also includes items such as alcohol and tobacco, clothing, rent and furniture.

Professor Minford, a former adviser to Conservative former Prime Minister Margaret Thatcher, said:

“The Bank of England is taking the view, and I rather agree with them, that this is a temporary rise in inflation.

“Certainly inflation is a little higher than the target at the moment (2%), but if you look at the economy, which is fairly depressed with moderate wage growth, it seems very likely inflation will come back down to 2%.”