The surge in commodity prices has many worried about skyrocketing food prices at home. But a look at how much the increase in raw commodities actually makes it to the plate, at least in the United States, shows that it is unlikely by itself to cause widespread inflation.
It’s not that inflation is not a significant worry. It’s that commodity prices are not enough to make it happen.
To be sure, prices that people pay at the grocery store will go up. A loaf of bread will become more expensive, as will an ear of corn and a pound of beef, which comes from cattle that are fed corn. But it’s a long way from a spike in the price of a bushel of wheat to a national inflation problem.
Research done at the US Department of Agricultureand MIT shows that, on average, about 19 cents of every dollar spent on food pays for commodities. The remaining 81 cents goes to such things as labor, taxes, profit and energy and transportation. There’s a healthy amount of packaging and marketing taken out of the dollar, too.
That practically limits the impact to about one-fifth of the rise in any commodity showing up in the consumer price index (19 cents on the dollar). But, in fact, it’s smaller that that.
Food represents just about 14 percent of the CPI basket. Another way of thinking about this is that if food prices overall went up by $1, only about 14 cents of it would be reflected in the CPI (Consumer Price Index).This percentage has been coming down quite substantially over the years, reflecting the overall the declining percentage of spending that go to sustaining ourselves with food.
And, in fact, the impact is thought to be smaller still. Food at home, that is, what we make for ourselves, represents just about 8 percent of the basket. The remaining 6 percent is the somewhat discretionary “food away from home” category.
