Prices for food in U.S. grocery stores jumped 6.6% last year - the biggest
spike since 1980 - underscoring yet again that inflation is a much bigger
problem than government officials, or most economists, say it will be.
Of all food categories, prices for cereal and baked goods hit U.S. consumers
the hardest, zooming 11.7% in 2008 over 2007. Prices for meats, poultry, fish
and eggs gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products
advanced 2.7%.
It was the second straight year U.S. consumers were forced to pay a lot more
for their groceries. In 2007, food prices at supermarkets rose 5.6%. Prices rose
only 1.4% in 2006.
Consumers had to pay the price last year because food makers battled the
largest spike in commodities they’ve ever faced, walloped by duel increases in
key food ingredients and fuel, which all marched to historic highs in July, a
month in which crude oil peaked at an all-time record of more than $147 a
barrel.
This major escalation in food prices calls to question contentions that
inflation is not a problem, a stance that - on the surface - appears to be
supported by government statistics that appear to be fairly benign.
“The notion that U.S. government inflation statistics are accurate has been
the subject of intense debate for years,” said Money
Morning Investment Director Keith Fitz-Gerald. “My own belief,
based on nothing more than what I feel in my wallet, is that those statistics
are more cooked than a Christmas goose. I hear the same thing from tens of
thousands of investors that I talk to around the world each year.”
The Lowdown on Inflation
For instance, inflation
averaged 3.85% last year, according to
InflationData.com, which offers investors statistics
that are said to be more-specific versions of government figures. But just like
stock prices, the inflation figures were whipsawed from one month to the next.
The monthly U.S. inflation rate actually eclipsed the 5.0% mark in June, July
and August, and was still above 4.9% in September. By December, however, the
inflation rate for the month was a nearly imperceptible 0.09% - the lowest rate
for any month in this decade.
The “official” consumer price index (CPI) - the measure of price changes that
directly impact U.S. consumers - also seems to indicate that we’re right now in
a fairly benign environment for prices.
On Friday, the Labor Department said that consumer prices dropped 0.7% in
December, slightly smaller than the 0.9% drop economists expected,
Yahoo! News and The Associated
Press reported. For the year, consumer prices as measured by the
consumer price index edged up by just 0.1%, down from the increase of 4.1%
reported for all of 2007 and the smallest annual change since consumer prices
actually fell by 0.7% in 1954.
The Labor Department said that the big yearly improvement occurred because of
the sizable declines in energy prices that we’ve seen in recent months.
The so-called “core” CPI for December - which excludes volatile food and
energy prices - was unchanged in December. For the year, the core CPI rose a
moderate 1.8%, down from the modest 2.4% increase for all of 2007. Price
pressures have eased as the recession intensified, The
AP said.
Even back in July - the month in which crude oil prices reached their
all-time peak - the overall CPI was
only up a reported 2.1%.
The U.S. government actually has an incentive to understate inflation rates,
since scores of payments - ranging from Social Security payments to retirees, to
the interest payments on inflation-pegged Treasury bonds - are pegged to
inflation calculations.
“The U.S. government is suffering from attention-to-deficits disorder,”
Money Morning’s Fitz-Gerald says.
