The increase, however, is small compared to the jump in the price of food commodities. That's because commodity food costs are just a small percent of the final price consumers pay in the store. The Goldman Sachs Agriculture and Livestock index is up 60 percent since its mid-June, 2010 trough and cash prices of grains have doubled, they noted.
The food component in CPI has risen just 0.8 percent since mid-2010, and 1.5 percent year-over-year. They say a rough rule is that retail food prices move just about one tenth as much as commodity prices, and it takes about seven months for commodity price changes to show up at the retail level.
"These results suggest that the burst of food inflation seen thus far poses modest upside risk to our current inflation forecasts, but not a major threat to the broader economic outlook," they wrote. They also said the rise in food prices should not have a major impact on the economy, as long as they stabilize soon.
"Much of the food that consumers purchase has been processed considerably and packaged, adding further layers of cost. And the food CPI includes food served at restaurants which incorporates further costs of service. All of these other costs generally move much less than commodity food prices, diluting the effect at the consumer level," they noted.
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