Paying more to eat

Earnings compared to broad CPI and food only CPI, 2008 to 2012

One of the great puzzles about The Fed’s Quantitative Easing profligacy has been inflation: specifically, where is it?. While I discussed this phenomenon a couple of months ago, specifically pointing out that the velocity of money was at near term lows while the supply of money was increasing wildly, I thought I’d look deeper.

The chart above shows the average hourly earnings of all employees (CES0500000003, black line) compared to two interesting series. First I’ve presented the Consumer Price Index for All Items (CPIAUCSL, green line) and the Consumer Price Index for Food and Beverages (CPIFABSL, blue line). All three series are sampled and reported monthly and to aid in presentation I’ve baselined all three series at 100 on September, 2007.

A few observations: while wages have undoubtedly increased by roughly 11% across the period, workers are essentially running in place, as the broad Consumer Price Index increased by 11% as well. So IF your wages kept pace with inflation you’re no better or worse off than you were five years ago. But over the same period the price of food (series Consumer Price Index for Food and Beverages, or CPIFABSL) has increased by a little over 14%. In other words, price increases for food are outstripping increases in earnings. Finally, the chart below presents price increases for three key components of processed food: Corn, Wheat and Soybeans, up 101%, 75% and 60% across the period. Over the next few blog posts I’m going to continue to decompose CPI into components, then later retrace by looking at earnings into specific sectors.

Corn, Soybeans and Wheat, montly, 2009 to 2012

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