Gas prices and inflation up, but food prices stay down. We didn't need any of this

A couple of interesting items dropped on the inflation front over the last couple of days. The first was on Wednesday, when the Bureau of Labor Statistics said that the Consumer Price Index had its largest one-month jump in more than a year.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.9 percent before seasonal adjustment.

The energy index increased 3.5 percent in March, accounting for about 60 percent of the seasonally adjusted all items monthly increase. The gasoline index increased sharply, and the electricity index also rose, although the natural gas index declined. The food index also increased in March, with the indexes for food at home and food away from home both continuing to rise.

So the march back toward $3 gasoline is starting to show up in the inflation numbers. What’s interesting is that the BLS assumes some sort of seasonal increase in gas prices for March already, but last month’s rise went well beyond what is typical.

That increase in inflation meant that real wages declined for the first time since October, and was the largest drop since the end of 2017.

Real average hourly earnings for all employees decreased 0.3 percent from February to March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.1-percent increase in average hourly earnings combined with a 0.4-percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Granted, February was a large one-month increase, so it could just be balancing out and panic isn’t necessary yet. But it’s yet another headwind that seems to be popping up for consumer spending in recent weeks.

The increase in food prices is both noteworthy and odd, because it doesn’t seem like it’ll last for long. That’s because it doesn’t reflect what farmers were (not) getting for their products in March, as shown by the Producer Price Index report that came out Thursday. The overall PPI also jumped, but almost entirely due to gas prices.

The Producer Price Index for final demand rose 0.6 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices edged up 0.1 percent in February and decreased 0.1 percent in January. (See table A.) On an unadjusted basis, the final demand index increased 2.2 percent for the 12 months ended in March, the largest 12-month rise since a 2.5-percent advance in December 2018.

…The index for final demand goods moved up 1.0 percent in March, the largest advance since a 1.0-percent rise in May 2015. In March, over 80 percent of the broad-based increase can be traced to prices for final demand energy, which jumped 5.6 percent. The index for final demand goods less foods and energy rose 0.2 percent. Prices for final demand foods advanced 0.3 percent.

Product detail: Over 60 percent of the increase in the index for final demand goods is attributable to a 16.0- percent jump in gasoline prices. The indexes for diesel fuel, fresh and dry vegetables, cigarettes, beverages and beverage materials, and residential electric power also moved higher. In contrast, prices for pork declined 8.7 percent. The indexes for light motor trucks and liquefied petroleum gas also decreased.

Inside of the report, you’ll find that the 0.3% increase in foods for March comes after 2 months of decline, and prices were only up 0.1% for the last 12 months, well below the increase in costs that most farmers are facing.

And even then, the increase in March prices was heavily concentrated in one area. “Crude finished foods” jumped by 5.7%, but had plummeted the previous 2 months, and were still down 3.3% vs March 2018. Processed foods only went up 0.2% in March, and “foods for export” dropped by 1.8%, the 3rd straight month that price had dropped.

If you go back to the stages that happen before the projects are finished, what food producers receive has continued to decline.

Producer Price Index, Foods March 2018
Stage 4, Intermediate demand
1-month- DOWN 1.2%
12-month- DOWN 2.0%

Stage 3, Intermediate demand
1-month- DOWN 1.4%
12-month- DOWN 5.6%

Stage 2, Intermediate demand
1-month- DOWN 3.6%
12-month- DOWN 8.0%

That’s not a good sign for farmers, and it’s even more concerning when you look at how many areas suffered price drops at the final demand stage. Only vegetables and dairy products (!) have had increases since last year.

Eggs actually go off the page with a 51% drop since March 2018 at the producer level, but that reflects a snapback from a 150% increase the year before, so not as catastrophic as you'd think.

The increase in prices for dairy product is welcome news for the farmers in Wisconsin that have been hammered in recent years. But then take a look at what’s happened over the last 5 years, and it’s still well below what they were getting in 2014.

And the trend of Wisconsin dairy farms closing hasn’t let up in 2019, even with those higher prices. There are over 1,000 fewer dairy farms than there were 18 months ago, and 265 have closed so far in 2019, Which indicates that any price increase is “too little, too late” for many.

Yes, this is only 1 month of data on prices. But the jump in gas prices is certainly continuing in April, and there are no breakthroughs that seem to be helping farmers sell products at a good price either here or overseas. Even the potential of lower food prices seems like a bad trade-off when you consider how many more agricultural jobs would be lost if this deflation continues.

And again I wonder where any legitimate growth in this economy is going to come from in the coming months. Just not seeing it.