Economic Inflation to Hit Everything from Cotton to Coffee
Curiously, empty potato chip bags are the first lesson in economic inflation. Manufacturers from Walmart to General Mills regularly skimp on products to deliver the packaging, pricing and quality we expect. It keeps things on an even keel -- for a time.
"Consumers probably shoulder at least half [the expense of inflation]," said Dawn Thilmany, a professor of Agricultural and Resource Economics at Colorado State University. "It's easy to mask some of this effect -- less full boxes of cereal, cheaper ingredients in processed goods -- because stores do find ways to keep prices under certain price points."
Yet merchants and manufacturers still shoulder the other half of that burden. In some instances, they cut down on such corporate expenses as shipping and uniforms. In others, the actual product takes a blow, hence those half-empty chip bags we keep seeing.
Businesses are reluctant to raise prices and lose customers, but sometimes such hikes are unavoidable. For 2011, Thilmany and other experts predict a slew of unlikely items will feel inflationary heat, after one of the tamest years in decades. The federal government expects typically cheap staples to bear the brunt of inflation, causing a ripple effect manufacturers can't swallow on their own.
Thilmany, who tracks consumer behavior for both research and food industry purposes, warns higher-than-average inflation on cotton and cereals could affect everything from designer jeans to McRibs. Her assessment is backed by a November article from the Wall Street Journal that reported imminent increases on many food staples shoppers take for granted. Safeway, Kraft Foods and others said they'll raise prices on basic goods like coffee, cocoa and sugar, while bad autumn harvests in India and China will likely cause cotton prices to skyrocket.
It's easy to feel cheated or helpless in the face of inflation, an economic locomotive fueled by unpredictable supply and demand. Its grand workings aren't easy to wrap our minds around, let alone while standing in the supermarket with Cheerios and baby diapers in hand. After all, who has the time (or desire) to track variable prices for international raw goods when what really matters is the sticker price?
For sensible shoppers, knowing the basics before hitting a store can help sidestep economic inflation (or at least understand your inherent frustration). The following is a list of eight categories expected to be most vulnerable this year, along with specific goods for each and why they'll feel the heat.
Hanes, The North Face and several other influential labels announced in November they would raise prices 10 percent or more throughout the year. Expect otherwise safe basics like jeans, dress shirts and socks sold after January to follow suit.
"Cotton is seeing great inflationary pressure, so you may see price pressure on clothing and textiles," said Thilmany. "Generally, you hear very little concern about the economic security related to such goods, but they are noticed by lower-income consumers."
Although costs have already begun to swell, the cotton ship hasn't yet sailed. T-shirts, towels and bedsheets prices will be safe well into spring and summer. As the year wears on, stick with cotton blends and synthetics, as many manufacturers will keep prices low by experimenting with alternative fabrics (including eco-friendly bamboo and hemp).
A recent article from The Guardian in the United Kingdom paints a bleak portrait of inflation with a vital commodity: chocolate. In a nutshell, we're going through cocoa faster than farmers can produce the crop -- your most basic example of supply and demand. The world's richest cocoa-producing regions are also plagued by war, poverty and unfair trading, including the Ivory Coast in Africa, which is responsible for one-third of the global supply. (The parallels to oil are uncanny, no?)
In early December, unrest in the Ivory Coast forced the price of cocoa up by 10 percent. Both Cadbury and Nestle responded by bumping the cost of chocolate bars in the U.K. by seven percent, a move expected to hit the States soon. Looking 20 years ahead, John Mason of the Nature Conservation Research Council said "chocolate will be like caviar." Not only could a $10 Hershey's bar be the norm, chocolate drizzle, chips and flakes will become a thing of the past, all thanks to inflationary pressure.
Such long-term predictions are admittedly uneven. Scientists have been devising synthetic cocoa for some time, though none quite match the delectable real thing. Either way, it proves how finicky the culinary market is for seasonal, regional or in-demand foods.
3. Sugars and Sweets
However harrowing the chocolate situation is, cocoa alone is nothing without its ubiquitous partners. According to a recent article from Bloomburg, sugar is the driving force behind the highest worldwide food prices in history. Across the globe, the average inflation rate for sugar outpaced all other staples.
The stateside price for raw sugar should remain on a relatively even keel, but many processed foods -- including cookies, candy, ice cream and more -- will likely see drastic increases due to bad weather in Brazil, the world's largest producer of the sweet stuff. Such instability means higher initial costs for manufacturers and noticeable sticker shock for consumers, sometimes before goods hit the shelves.
Thanks to the fickle nature of inflation, businesses are occasionally forced to renege on previous promises. Starbucks raised the price for many of its premium drinks last September, only a month after the chain announced coffee costs would remain unchanged.
Expect supermarket coffee to jump in cost as well, though not as sharply. Although the cocoa-growing regions of Africa are in turmoil, coffee producers in Kenya report better-than-average harvests.
For those in absolute need of a $6 latte, learn to work the system. Visit the Starbucks "hack" on Reddit.com for tips on how to cheat the menu, split orders and generally finagle your way around inflation at the coffee giant. The general advice (one large drink split between two people is a better value than two medium drinks) can be applied to most fast food giants.
5. Cereals and Grains
Supermarkets nationwide have felt pressure from major producers in the past few months, sometimes forced to pay nearly five percent more than expected for cereal. Once stores feel the squeeze, consumers are next. As reported in the Wall Street Journal article, Safeway and Kroger said they would pass the high cost onto shoppers, though they didn't specify dollar amounts.
Kellogg's and General Mills, two of the biggest names in breakfast, have started raising prices for all their products, including popular brands like Rice Krispies, Special K, Cheerios and Wheaties.
On the grain side, Sara Lee and Kraft Foods announced they'll bump prices on certain products. Although neither company chose to name what products would be affected, both control such major brands as Jimmy Dean, Nabisco and Wheat Thins.
6. Fats and Oils
It's a bit general to lump fast food under the fats and oils category, but you can't deny it fits. Consumers hesitate to cause a ruckus over burgers and fries since changes are gauged in dollars rather than cents. Fast food has lulled us into expecting cheap food, though the avenues companies take to keep prices down can be questionable.
Not so in 2011, as McDonald's announced a two-percent price increase for its entire menu, the first such move in over a year. Many chains mask inflation by unveiling select discount menus while upping the price for combos, premium orders and extras like sauce packets or dressing.
Typical grocery store fats like butter and cooking oils won't see much change, so Crisco supplies are safe. Dairy products, however, could soon see a spike thanks to increased demand for milk across the globe. Keep in mind Kraft projected price hikes, which could affect its Velveeta and Kraft Macaroni and Cheese brands.
7. Fresh Produce
Fresh fruits and vegetables are notoriously prone to inflation, particularly when out of season. Despite a promising drop of two percent in the average price from October to November, prices often rise steadily from winter into spring. Sidestep this problem by shopping such versatile staples as potatoes, tomatoes, carrots, lettuce and regionally-available crops. There's no inherent problem with fresh plantains in February, but you'll pay for the luxury.
Although meat is often at the changing whims of inflation, Thilmany says prices for beef, poultry and pork should remain stable in the U.S. despite some of the highest prices ever recorded worldwide. Be on the lookout for prices to surge come summer, particularly for beef.
8. Fish and Seafood
Ever ordered lobster at your favorite seafood restaurant, only to be told your bill is based on market price? The cost for fish and seafood is extremely difficult to predict, particularly when ordered fresh. As usual, those in landlocked states will deal with unexpected hikes, but even those living oceanside should be wary this year. Sushi and fish markets will have the most unstable pricing, as such places are on the upper end of the inflation spectrum regularly.
Most consumers won't be directly affected by the plight of the bluefin tuna, but its devastation speaks volumes to fresh fish aficionados everywhere. The large fish is cherished the world over as a gourmet food and often called the "King of Sushi." As the market would have it, high demand has led to overfishing and the bluefin is now considered critically endangered.
The price for a single bluefin can range between $2,000 and $20,000, with the most expensive garnering nearly $400,000 at a January auction in Tokyo. What's more, the Atlantic variety live and spawn in the Gulf of Mexico, an unappealing piece of real estate after the BP oil spill.
What does this mean for the bluefin? If the Tokyo auction is an indication, people will still pay to eat an animal into extinction, no matter the dollar price. Demand will, in effect, wipe out supply. Food for thought.
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