Food Inflation Threatens Societies

Freedom Financial Archive | Originally posted Feb 23, 2023

Dear Reader,

The pressure grows even more when you consider how much money is spent on food every year. The average amount the typical U.S. consumer spends per $1 on food has increased. Pre-COVID, the average person spent .17 -.24 cents per $1, depending on income bracket. That has shifted significantly to .27 – .34 cents. This is a big number when you consider the drain on discretionary spending this creates.

The below chart puts into context just how much food inflation impacts the poor and middle class. It’s a huge drain on spending power. And given the bounce in food inflation, the impact is far from over.

In 2021, households in the lowest income bracket spent an average of $4,875 on food (representing 30.6% of income), while households in the highest income bracket spent an average of $13,973 on food (representing 7.6% of income).

The changing dynamics are impacting everyone, and all the data is showing the same pressure points. In the latest Gallup survey, 50% of Americans say they are financially worse off than last year — the highest level since 2009. It shouldn’t be surprising to see the biggest impact occurring on those in the lower income bracket, but you can see the pain affects everyone.

Food Prices Are Going Up, Up and Away

None of the leading indicators for food are improving. In fact, they are getting worse in 2023. Beverages & food production rose for the second month in a row, with the rate of expansion picking up to the fastest pace since July 2022.

Input cost inflation remained elevated, however, and was slightly stronger than in December. Anyone that has been to the food store can attest to the rise in costs, and the upward movement in prices seems endless.

The cost to the farmer is also moving in the wrong direction. There are so many components and input costs that go into the food we eat, and we are seeing another acceleration of cost increases that will move these prices even higher.

Lower Food Prices: Don’t Believe It

That’s why I laugh when I see headlines like “Food and Agriculture World Food Prices Have Fallen Almost 18%”. Sure, they have dropped back from all-time highs. But it’s important to evaluate the whole story.

Since the lows of the early 2000s, we have seen a steady rise in prices of 155% (or 4.6% annualized) to this point. We are still above the prices that sparked the “Arab Spring”, and this is happening in lockstep of falling wages and rising global inflation on everything – not just food.

So far we have only discussed America, the richest country in the world and a land mass capable of feeding itself. What happens when you are an emerging market relying on the international market? There has been a steady rise of impacts to the global market with about 800 million people facing hunger in 2021. This has only worsened with higher food prices, inflation, and weakening real wages.

In tomorrow’s letter, we’ll wrap up our food series with a look at global food insecurity, food for peace initiatives, and the impacts of La Niña.

Kind regards,

Freedom Financial News