Here’s what’s to blame for rising food prices, according to a New York Fed analysis

Stocks, bonds, gold and bitcoin – almost everything but the US dollar – rose on Friday when Fed Chairman Jerome Powell not only said it was time for policy to adjust, but that further increases in the unemployment rate would be undesirable. Markets looked poised for a calmer session on Monday, a lull that could last until Nvidia reports its results on Wednesday.

In the meantime, it’s worth looking at food prices, which have become a strong political issue in the presidential campaign. Vice President Kamala Harris has outlined a plan, still lacking many concrete details, that would ban corporate price increases on food and groceries. Part of the food price problem can also be seen in an antitrust lawsuit that began Monday over Kroger’s planned takeover of KR’s rival Albertsons, ACI.

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An analysis by the New York Fed — written before the Harris proposal — said rising profit margins weren’t really to blame.

The analysis, written by economic research adviser Thomas Klitgaard, acknowledged that margins have increased. Citing government data, he said food and beverage retail store margins are from 2.9 percent in 2019 to 4.4 percent in 2023. But that equates to about $10 billion of an increase of 100 billions of dollars in revenue, he noted.

Instead, he blamed two factors. One was the huge increase in agricultural and livestock prices. “Looking at the entire period (since 2005) shows that food prices seem to respond significantly only when commodity prices make large moves, such as the spikes in 2008 and 2011 and the collapse in 2015. The rationale is that there are many other input costs that dictates. food prices, so it takes unusual changes in commodity prices to affect food prices,” he said.

Klitgaard did not examine why commodity prices rose so much, but part of the reason was Russia’s war against Ukraine, which affected fertilizer supplies as well as wheat supplies.

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The other factor behind the increase in food prices was large wage increases for food workers. Since 2019, manufacturing wages have grown 15 percentage points more than those in the food manufacturing sector or the workforce as a whole. These are still low-paying jobs — about $13 an hour less than the private sector average — but less paid than before.

Now food price inflation is falling. “This analysis suggests that the significant moderation in food inflation from early 2023 is due to still high wage inflation for food workers being offset by lower commodity prices,” Klitgaard said.

Market

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