Many Americans will be feeling the effects of higher commodity prices this 4th of July.
If you have been to the grocery store lately, you’ve probably done a double-take at the register as your outdoor grilling essentials are being scanned. Steak and ground beef prices are up almost 6% over the last 12 months and a persistent drought in the mid-West is driving corn prices up dramatically. USDA recently reported that the average price that Americans pay for food will be up between 2.5% and 3.5% vs. what we paid in 2011.
However, before you ration the hot dogs and burgers and put a hold on serving steaks at your BBQ this year, lets take a look at the long-term history of food prices in the U.S.
Don’t Blame Inflation This Time
The good news is that there’s been a reduction in prices over the last 30 years in real terms (by “real” we mean the cost of food adjusted for the average rate of inflation). Now, food costs are part of the overall inflation picture, so a decline in food prices in “real” terms simply means that food prices have not gone up as much as the official aggregate rate of inflation.
That’s the good news.
However, what really matters is the fraction of our total spending that goes to groceries—and that’s fallen. NPR reports that almost 13% of American household spending went for groceries in 1982 vs. less than 9% today.
Ok, so we’re all spending less at the checkout. But why do we feel as though everything is getting so expensive?
Lower Wages Taking a Bite Out of the American Budget
Part of the reason is that the median real income has fallen substantially (specifically, for the American male). Over the past forty years, the median real income for a working-age American male has fallen by 28%!
While food prices may have dropped substantially since the green revolution, (a period from the late 60’s to the late 70’s during which agricultural production skyrocketed) there has been a substantial rise in global commodity prices (both energy and food) over the last decade. (See also, “What’s Driving the Price of Oil?”)
Keep Passing the Ketchup
So what’s an investor (and avid BBQ-master) supposed to do in the wake of higher food prices and lower wages? Adapt and adjust your budget—just like we’ve all been doing in this rocky economy. Then put another steak on and enjoy your holiday.
From all of us at the Portfolioist—have a safe and happy July 4th.
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