Posted originally on the conservative tree house on August 10, 2022 | sundance 

The Bureau of Labor Statistics (BLS) has released the July inflation figures known as the Consumer Price Index (CPI) [DATA HERE]. I’m not going to spend much time on the review because the big picture results are exactly what we expected, the appearance of a false inflation plateau, drop and/or moderation of inflation.

The July energy prices dropped significantly driven by a reduction in consumer demand for gasoline and fuel oil, which lowered prices.   We can expect a very similar outcome in August (report in Sept).

Most financial and economic media are reporting an “unexpected” drop in inflation, ex:

“Prices that consumers pay for a variety of goods and services rose 8.5% in July from a year ago, a slowing pace from the previous month due largely to a drop in gasoline prices. On a monthly basis, prices were flat as energy prices broadly declined 4.6% and gasoline fell 7.7%. That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs. {link}

Most econ people will look at the price drop sectors and accept that consumer spending on durable goods and non-essentials has become a downward price point on key categories like vehicles etc.

This is the ‘stag’ part of the ‘stagflation’ (economy), or the new lingo; the ‘dis’ part of the ‘disinflation’ (consumer spending).

For the middle-class or working class, especially those families with young children, I would shake all those data points away, clear the table and look more closely at [BLS Table-2] to see where our eyeballs should be focused.

Look closely at all food group products that originate as “ROW CROPS” and/or “GRAIN”.   Just by looking at the current rate of price increase, you can easily see that all grain and row crop outcomes are going to explode in price in around 60 to 90 days.

The wholesale food supply chain is starting to price-in the future cost at market for products that have yet to be harvested.  Remember, ‘row-crops’ and ‘grains’ are the most energy intensive farming and carry the highest rate of energy use in the process, including fertilizer and diesel prices.  Row crops also carry the highest labor rate to harvest.

When you look at row crops and grains in the Table-2 breakdown of food prices the input price cost is easy to spot.

Annualizing the price outcomes, we see:

Flour at +60% in June and +38% in July.

Bread overall at +19% in June, and +34% in July.

Crackers at 12% in June, and +40% in July.

All grain-based categories are in this +35% to +50% annualized rate.  This is a good rough estimator for what is going to happen in the third wave of food prices we have been discussing.  These are energy cost increases we have to look forward to within current grain harvests.  Additionally, a global shortage of grain will only make this worse.

Eggs are also in this +50% range, and Coffee around +42%.

The same is true for row crops with potato prices in July up +40% (annualized).

SUMMARY:  Energy prices in July, Aug, Sept, moderate yet stay high – giving the false impression of inflation slowing as the overall economy continues shrinking.  However, by the time we get to Sept, Oct, Nov, all of those high farming costs are going to transfer from the field to our forks.  Food inflation in the last quarter of this year is going to be the urgent family conversation that takes the place of gas prices.