TLDR: Food prices surge as drought exacts a high toll on crops.
It’s true that broad cost metrics like the consumer price index (CPI) have shown low levels of inflation in recent years but that’s even more the case with the so-called “core” measures of inflation. Indeed, core-CPI and similar indicators usually exclude items like food, energy, and shelter because they are more volatile on a month-to-month basis. Some people don’t like this approach because to them, excluding such measures is basically providing a gauge of inflation only useful for people as long as they don’t have to eat, drive cars, use electricity, or sleep under a roof. Regardless, it’s clear that inflation in these areas has been high lately since the most recent report from the U.S. Department of Labor showed that core CPI excluding food, energy, and shelter has fallen to a 10-year low. The main driver has been food inflation, led by beef prices surging by almost 5 percent just in February, the biggest chance since November of 2003. The Wall Street Journal expands, “Surging prices for food staples from coffee to meat to vegetables are driving up the cost of groceries in the U.S., pinching consumers and companies that are still grappling with a sluggish economic recovery. Federal forecasters estimate retail food prices will rise as much as 3.5% this year, the biggest annual increase in three years, as drought in parts of the U.S. and other producing regions drives up prices for many agricultural goods. Globally, food inflation has been tame, but economists are watching for any signs of tighter supplies of key commodities such as wheat and rice that could push prices higher. In the U.S., much of the rise in the food cost comes from higher meat and dairy prices, due in part to tight cattle supplies after years of drought in states such as Texas and California and rising milk demand from fast-growing Asian countries. But prices also are higher for fruits, vegetables, sugar and beverages, according to government data. In futures markets, coffee prices have soared so far this year more than 70%, hogs are up 42% on disease concerns and cocoa has climbed 12% on rising demand, particularly from emerging markets…”
