Food prices increase 3.9% in February, highest jump in 36 years

posted at 11:36 am on March 16, 2011 by Ed Morrissey

If grocery bills seem higher, you’re not imagining things.  Thanks mostly to a sharp increase in fuel prices, the cost of food rose faster in February than in any month since November 1974 — not coincidentally, during a previous energy crisis:

Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Excluding those volatile categories, inflation was tame.

The Labor Department said Wednesday that the Producer Price Index rose a seasonally adjusted 1.6 percent in February — double the 0.8 percent rise in the previous month. Outside of food and energy costs, the core index ticked up 0.2 percent, less than January’s 0.5 percent rise.

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.

The good news is that the price of oil has declined after the disaster in Japan, going down to $97 a barrel.  However, with Japan’s nuclear reactors under scrutiny and the crisis ongoing at their Fukushima Daiichi plant, Japan will need to boost its other sources of electricity.  Nuclear power accounts for more than a third of it now.   Japan will have to import raw materials for other sources to boost production, and whether that means oil itself or coal, increased transportation demand will eventually mean higher prices even while Japan recovers from the destruction.

Reuters reports that the price increase surprised economists, and it’s not the first time either:

[The overall rise in wholesale prices] was more than double economists’ expectations for a 0.7 percent rise last month. In the 12 months to February, producer prices increased 5.6 percent, the biggest rise since March, after advancing 3.6 percent in January.

The report came a day after the Federal Reserve said it expected the upward inflation pressure from energy and other commodities to prove transitory but that it would keep a close eye on inflation and inflation expectations.

Economists said given the huge amount of slack in the economy, they did not expect the strong producer prices to pass through to consumers any time soon.

My good friend Scott Johnson at Power Line blames the Fed’s QE2 policy in part for the problem, and points to this WSJ editorial yesterday warning of a rise in inflation:

The Federal Reserve has been on a media campaign to sell its monetary policy to average Americans, but this hasn’t always gone smoothly. Witness last week’s visit to Queens, New York, by New York Fed President William Dudley, who got a street-corner education in the cost of living.

The former Goldman Sachs chief economist gave a speech explaining the economy’s progress and the Fed’s successes, but come question time the main thing the crowd wanted to know was why they’re paying so much more for food and gas. Keep in mind the Fed doesn’t think food and gas prices matter to its policy calculations because they aren’t part of “core” inflation.

So Mr. Dudley tried to explain that other prices are falling. “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said. “You have to look at the prices of all things.”

Reuters reports that this “prompted guffaws and widespread murmuring from the audience,” with someone quipping, “I can’t eat an iPad.” Another attendee asked, “When was the last time, sir, that you went grocery shopping?”

Scott cleverly titles his post, “Let them eat iPads.”  I’m not sure I’d draw a line between QE2 and what has happened in food and oil prices, at least not as a primary factor.  The effect of QE2 will be to weaken the dollar, which will hike the cost of imports, to be sure, and that may account for a little of the large price jump.  If it was the main factor — if the dollar had been weakened to that extent — then prices would be up across the board, especially on imports.  At least according to today’s report from the BEA on the trade deficit, that doesn’t appear to be the case.

The real source of this problem is America’s continuing refusal to exploit its own energy sources.  We remain too dependent on imports for energy while deliberately sidelining at least hundreds of thousands of potential high-paying jobs by refusing to extract our own oil and natural gas.  When the unstable countries that produce oil go through political paroxysms, it spooks investors and sends commodity prices soaring on the increased risk to distribution.  Those price increases mean higher transportation costs, which impacts all goods and services that require transport to get to consumers.  It’s a multiplier factor that we have seen a number of times over the last four decades, and which our political class continues to pretend doesn’t exist.

Update: Gabriel Malor reminds me that prices of imported goods went up 1.4% in February as well, so the QE2 effect could be a larger part of this than I argued — but not the most pressing cause.

Update II: Yes, it’s definitely worth pointing out that Sarah Palin predicted this in November of last year:

So, imagine my dismay when I read an article by Sudeep Reddy in today’s Wall Street Journal criticizing the fact that I mentioned inflation in my comments about QE2 in a speech this morning before a trade-association. Here’s what I said: “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher.”

Mr. Reddy takes aim at this. He writes: “Grocery prices haven’t risen all that significantly, in fact.” Really? That’s odd, because just last Thursday, November 4, I read an article in Mr. Reddy’s own Wall Street Journal titled “Food Sellers Grit Teeth, Raise PricesPackagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”

The article noted that “an inflationary tide is beginning to ripple through America’s supermarkets and restaurants…Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months.”

I wonder what Sudeep Reddy thinks now?

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Del Dolemonte on March 16, 2011 at 3:15 PM

Walls? That has to be nice. Learn something new everyday on HA. Growing up we had an over an acre of garden that we did by hand. Yes, by hand. Filled milk containers with water and loaded them in the wagon, drove to our garden and we kids watered. As a girl, it was a big deal when I could carry 8 gallons of water at once, same as my brothers, to the end of each row and keep up with them. My dad about died when I was in charge of planting one year and made 22 rows of beans, 90 ft long. I don’t know if we made it to the pool very often that year because they took forever to pick by hand.

Snipped and cut hundreds of courts of beans. Filled pickle jars. Mashed pints of strawberries for jam. And stayed up many nights with mom canning corn ( if I remember correctly it’s a 60-90 minute process for each batch)

But I can’t figure out container gardening. Maybe this is the year.

journeyintothewhirlwind on March 16, 2011 at 7:03 PM

To new gardeners – the web, books, all are great. Read seed catalogs, lots of basic info in them.

jodetoad on March 16, 2011 at 6:58 PM

Go with books. And get them soon.

Start thinking in terms of:

What happens if there is no internet; cable; mobile phones; electricity; water or gas?

I’m no survivalist and I’m a new gardener, but the debt we’ve taken on is going to kill the economy when interest rates go up due to our devaluing the dollar.

Japan is worse off than us. I truly believe they’re going to experience hyper inflation in the very near future because they’re going to have to print money (or sell our treasuries) … unless countries just start giving them goods.

E.g. Saudis get paid in dollars. Say a barrel of oil costs us $100. We double our money supply. All of a sudden a barrel of oil costs us $200 – because that’s what the Saudis demand since we doubled out money supply. To get more dollars we have to sell more bonds. To make those bonds attractive (since their in $ denominations that are now half of what they were worth before), we have to increase interest rates.

Add on top of that quantitative easing (printing money to buy Treasury bonds) that ends in June.

Get ready folks.

We may be reading (in books) about how great things were during the Great Depression.

I’m getting my garden going tomorrow.

Things will get really interesting when those welfare deadbeats find it costs $50 for a pack of smokes and the xbox doesn’t work any more because there’s no electricity in their Section 8 housing.

BowHuntingTexas on March 16, 2011 at 8:28 PM

how long before we hear that free veggies are a civil right?

You know it’s coming

cntrlfrk on March 16, 2011 at 8:29 PM

When reached for comment a visibly annoyed President Obama commented, “Fore!”

Mason on March 16, 2011 at 8:38 PM

Gardening is a rewarding way to feed your family with fresh vegetables throughout the year. I look forward to springtime each year and am waiting for the weather to improve here in Virginia so I can begin my planting. Should be planting my potatoes, onions, and radishes by the weekend. Soon as the last frost/freeze occurs will be getting squash, tomatoes, cucumbers, snap beans, peas, okra, maybe some corn, cantaloupes, watermelon in the ground. My area for gardening isn’t all that big, right now I’ve got a small section 42×24 broke up with a tiller ready to plant, but I’ve land which we have used which will double that in the later spring where I can plant more. After harvesting earlier crops we plant fall or late blooming veggies.

Suggestion to some folks, get your local church involved, start a co-op of sorts where people can work an area together and share in the spoils. Lots of good ideas/suggestions coming from the folks here and I plan to reread some of the comments and try some of the ideas I’ve seen posted here. Found out that you can freeze summer squash a while back. Got a great deal on squash at the local Farm Fresh one day, brought it back, cut it up and froze it. Mother cooked a package up a while back, tasted just as fresh as if it had just came out of the garden and this was in the middle of the winter!

nwsseeker on March 16, 2011 at 8:52 PM

start a co-op of sorts where people can work an area together and share in the spoils. Lots of good ideas/suggestions

nwsseeker on March 16, 2011 at 8:52 PM

Great idea. The town I live in has a public garden where the locals can plant their own, small gardens (probably 5 x 5 plot of land).

I met a guy last year who lived in an apartment but used the public garden to grow his veggies. I was impressed by how much he was growing (lettuce, onions, etc.).

BowHuntingTexas on March 16, 2011 at 8:59 PM

So Mr. Dudley tried to explain that other prices are falling. “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said. “You have to look at the prices of all things.”

If it was the main factor — if the dollar had been weakened to that extent — then prices would be up across the board, especially on imports. At least according to today’s report from the BEA on the trade deficit, that doesn’t appear to be the case.

Forgive me if someone already pointed it out, but prices ARE up across the board relatively speaking. For instance, if a HD TV used to drop 25% every year while adding better/cooler technology, but now it’s only a 10-15% drop, then prices are still rising. Moore’s Law may still be at work, but people aren’t seeing the corresponding bang for buck.

AH_C on March 16, 2011 at 9:00 PM

guess it’s time to build that greenhouse I’ve been planning all winter.

Keep in mind to plant vegetables that can be stored or preserved easily, with good flavor.

I still have a few awesome acorn squash from last year that are as good as the day I picked them

cntrlfrk on March 16, 2011 at 9:16 PM

BowHuntingTexas on March 16, 2011 at 8:59 PM

I saw this coming a while back, year or so ago and tried to get my parents’ church to consider a garden on their property, they’ve got 9+ acres of land in the city here but couldn’t get anyone to listen then, perhaps they will now. The property is being used for soccer games, flag football, etc., just have to convince them that there’s a better use for that land,… like feeding their families. The good part of “co-op” gardening is the fellowship that can be had and the satisfaction of watching your dinner grow!

nwsseeker on March 16, 2011 at 9:17 PM

We’ve got 3 fig trees and my folks have canned them over the years, really good over pancakes, my preference though is preserved watermelon rinds. Also my Dad has a blackberry vine he planted, he loves to go out there and pick blackberries off of the vine and eat them right there. I’ve been trying to grow strawberries for some time, I get a few each year but can’t seem to get a bumper crop.

nwsseeker on March 16, 2011 at 9:22 PM

Back in S IN when I would visit my grandparents, we’d go to the Muskatatuck Wildlife refuge.
The old homesteads rotted away, but a lot of their old orchards are still producing.
Blackberries & raspberries in abundance.
In TX we’d go to the city parks & shove pecans in buckets to take home. Free.
In WA state, we’d go pick blueberries & huckleberries up in the mountains. For free.
And in cities I have seen opportunities for community gardens like some have mentioned here.
I think the church deal would be wonderful.’
How can you pass up a fellowship opportunity like that?

Badger40 on March 16, 2011 at 11:25 PM

The “recovery”.

Wonder how long the Dems surrogates will continue to throw that in on interviews commentaries time to bloviate Party talking points financed by the various networks?

Dr. ZhivBlago on March 16, 2011 at 11:26 PM

Reuters reports that the price increase surprised economists, and it’s not the first time either:

These guys seriously, seriously need to hire some new economists. :) :) :)

Theophile on March 17, 2011 at 2:19 AM

Gee, wasn’t it just three months ago that Sarah Palin was skewered for predicting that inflation was going to start increasing significantly? Seems like that ‘idiot’ from Alaska is on the money again. So do we want a smart idiot in the white house, or a wise woman who has been falsely and viciously portrayed as an idiot?

eaglewingz08 on March 17, 2011 at 8:28 AM

Maybe some of these highly educated clowns need to go to the supermarket with thier wife and see first hand what is transpring at the check out counter. Oh that’s right, we are paying them so much they send their illegal maid to the store so as not to have to really confront what the average citizen is dealing with.

What a joke this clown is.

Rockman44 on March 17, 2011 at 10:05 AM