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Of course, you and I can't ignore food and energy. The fact that I've got to spend some fuel as soon as I finish breakfast is testimony to that. Energy costs, says the BLS, fell 1.9% in September following the 3.1% decline reported in August. Food costs, however, rose 0.6% in September, repeating August's level of increase. Here's where the numbers really hit, um, home. According to government figures, the cost for meals at home has risen 7.6% over the past year, outpacing the overall inflation rate of 5.4%. The fervid pace is evidence of the catch-up game consumer food prices were playing with wholesale costs during a dramatic bull move in commodities. The pace of inflation is clearly slowing now. At the wholesale level, in fact, prices are actually falling. Witness the price trend in the Breakfast Index, a composite of eight futures contracts on food items you might find on your morning table. Commodity futures are whole prices writ large. They reflect the prices paid and received by commercial producers and users of foodstuffs. As such, they provide clues to future trends in consumer prices. Over the same three-month period the BLS uses to measure current inflation, breakfast food futures prices fell an average of 14%. Only one item - butter - actually increased. Breakfast Index (Sept. '08) Commodity | Contract Month | 30-Jun-08 Price | 30-Sep-08 Price | 3-Month Change (%) | Annualized Change (%) | Butter, AA | October ‘08 | 157.25 ¢/lb | 168.00 ¢/lb | 6.8 | 30.0 | Pork Bellies (Bacon) | February ‘09 | 97.250 ¢/lb | 93.750 ¢/lb | -3.6 | -13.5 | Sugar #11 | March ‘09 | 14.62 ¢/lb | 13.66 ¢/lb | -6.6 | -23.6 | Coffee | December ‘08 | 157.25 ¢/lb | 130.45 ¢/lb | -16.8 | -51.8 | Milk, Class III | October ‘08 | $20.02/cwt | $16.56/cwt | -17.5 | -53.5 | Cocoa | December ‘08 | $3,162/tonne | $2,558/tonne | -19.0 | -56.8 | Wheat | December ‘08 | $8.8175/bu | $6.8000/bu | -22.9 | -64.3 | Orange Juice | November ‘08 | 125.75 ¢/lb | 89.20 ¢/lb | -29.1 | -74.4 | Average | | | | -13.6 | -38.5 |
These price declines were buried deep in yesterday's Producer Price Index release (see "PPI Develops A Sinking Feeling"). Prices for crude goods, which include producer-level agricultural products, fell nearly 8% in September, according to the government report. There's still some inflation backed up in the supply chain but, over the past couple of months, some has been worked off. Or, rather, squeezed out. The spread between the farm prices and finished food prices has been ratcheted down more than 5% since July. Producer Prices: Farm Products Vs. Finished Food  Now, if we could only figure out how to squeeze butter without making a big mess, our breakfasts might get cheaper.
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