For immediate release: March 28, 2011
Dallas Fed: More-Processed Food Items in PCE Could Indicate Sustained Period of Food Price Inflation for U.S.
DALLAS—Movements in prices for more-processed food items in the personal consumption expenditures (PCE) price index are a useful measure of the underlying trend in food inflation, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.
Economic Letter can be found at: http://dallasfed.org/research/eclett/2011/el1104.html.
In “Inflation Measurement Gives Us Food for Thought,” senior research economist Jim Dolmas finds monthly changes in a price index constructed with more-processed food items from the PCE are closer to the trend rate of food price inflation than is the PCE’s all-food-items index.
The more-processed food components mostly consist of items such as bakery products, cereals, processed dairy products and soft drinks, Dolmas says. These items are produced by large companies that typically possess market power and are more forward-looking when setting prices.
Meanwhile, less-processed food items in the PCE include such things as beef, milk, eggs and fresh fruit, Dolmas states.
Prices for more-processed food items in the PCE, which were tame in 2010, have risen sharply in the first two months of 2011, Dolmas notes, increasing at a robust 5.2 percent annualized rate. In addition, prices for less-processed items have risen at a 19 percent annualized rate in the first two months of 2011.
“A sustained period of higher food price inflation may be in store for U.S. consumers,” Dolmas writes.
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