Food prices. We don’t usually notice them unless they rise a lot. Right now, it seems like everything costs a lot more (23% more on average than 4 years ago), but some things cost two or three times as much — what’s going on?
By Peter Reagan
Food. It (along with air, water, and shelter) is one of the basic necessities for survival. And because of that, the cost of food is something that everyone who isn’t part of the “1%” pays attention to in their budget.
The good news is that, thankfully, we still have ample food. Food security – in other words, hunger – just isn’t something most Americans have to worry about. In fact, it might come as a shock to you that 13.5% of U.S. households don’t have that privilege. They don’t always have enough food for a healthy, active life.
I’m not going to play politics or tell you who I blame for this situation, though. I just want you to know it’s a fact.
The problem is that it’s going to get worse…
What’s going on with food prices?
Even if you haven’t consciously thought about it, I’d bet that you have a feeling of what has been going on with food prices over the last few years.
Those prices feel like they’ve been going up.
And, believe me, it isn’t just your imagination. They have been going up – not just at the grocery store, either. Courtney Brown with Axios reports:
The Producer Price Index rose 0.4%, the biggest monthly gain since this summer. The index increased 3% in the 12 months through November, the largest increase since February 2023.
– A pickup in goods prices – largely for food – accounts for almost 60% of the index’s monthly increase.
– Among the goods with the sharpest price increases: chicken eggs, which rose 55% in November alone. Prices for vegetables, melons, poultry and residential electricity also jumped.
The Producer Price Index (PPI) measures the cost of getting finished goods onto store shelves. Brown’s report tells us producer prices are rising – and that means the prices they charge will be rising, too. When they pay more, we pay more.
So, when the PPI increases, the CPI rises, too. That’s just logical, right?
And while a 0.4% increase in food prices doesn’t sound so bad, let me point out that’s a monthly increase. Annualized, that’s a 4.9% increase in prices – just for food!
While rising food prices aren’t as bad for the overall economy as rising gas prices, they aren’t good news either.
And you know what might make it worse?
Supply chains and food prices
Emily Peck and Rebecca Falconer with Axios write:
President-elect Trump appeared to indicate his support for the dockworkers union in its contract dispute with the United States Maritime Alliance (USMX) that led to a major strike at East Coast and Gulf ports earlier this year.
You may remember that I talked about the earlier strike a couple of months ago. The union was asking for the hourly wage for dockworkers to nearly double ($39 an hour to $69 an hour), along with other demands.
Why it matters: Though port workers are back on the docks after a three-day work stoppage in October, they haven’t yet finalized a new contract with the shipping companies – the prospect of an economy-crushing strike still looms.
Make no mistake about it, if they decide to go on strike again, it will cause massive supply chain issues which always drive prices higher. Warehousing, shipping, industries reliant on imported commodities and parts – all will suffer.
And because the union in question both controls ports handling 68% of US imports and they have President-Elect Trump’s support, they have a good chance of getting what they want! I don’t want to get into the specifics of their case – I’ve never worked at a port and I don’t know what their lives are like. I can tell you about the effects on our economy, and on prices.
Raising pay and benefits raises costs – there’s just no way around it. That means the stuff we buy from Amazon, Target, Walmart and even the local grocery store noticeably more expensive. After all, the U.S. imported around $194 billion in food in 2022, and the numbers have only gone up since then.
That’s just one piece of the supply chain – and the pandemic panic taught us that supply chains are incredibly complex and spiderweb-fragile…
There’s a reason we say food prices are “volatile”
Over at CNN, Alicia Wallace writes about some of the factors that make food prices volatile:
Even before “inflation” became a household word, food prices have long been subject to fluctuations as the result of weather events, crop yields, disease, war, supply chain snarls, spikes in demand or other temporary disruptions.
And that’s what’s happening here with eggs (and beef and coffee and orange juice).
To put it simply, there are an astonishing number of factors that can affect the price you pay for a dozen eggs and a pound of coffee at the grocery store. Any farmer can tell you that a single season’s harvest might be double last year’s – or it might be nothing. Drought, blight and even the price of gas affect how much food comes out of the Midwest every year.
In short, food prices change a lot.
We usually notice when they change both a lot and quickly. When a loaf of bread goes from $3 to $6 in a month or two, we notice.
That wonderful invention we call “the free market” usually solves this problem for us. When the price of eggs doubles, suddenly it’s a lot more profitable to become a poultry farmer! Existing facilities expand, entrepreneurs get in on the action – and the supply of eggs goes up. That pushes the price down.
The opposite is true, too! If the poultry farming industry becomes glutted with supply and egg prices slump into unprofitability, well, the industry contracts. Prices tend to stabilize at the point that’s both profitable for producers and affordable for families.
Remember, there’s a difference between price increases and inflation. Which means that the biggest factor in food prices isn’t the weather or demand spikes…
The biggest factor driving food prices higher
Here’s the thing – many different factors can drive one price higher (eggs or coffee, for example). But there’s only one factor that can drive all prices higher.
And that is inflation.
Inflation comes from increasing the supply of dollars – something the federal government has been doing all too rapidly of late. So far in fiscal year 2025, federal spending is up 11% year over year!
Extrapolating the numbers, we see that the national debt is on course to hit $40 trillion before January 2026.
Let me make this absolutely clear – so clear that even Paul Krugman could understand.
Every dollar of deficit spending increases the global supply of dollars. More dollars isn’t the same thing as more purchasing power, though – instead, creating new dollars simply devalues all other dollars in existence.
Every dollar in your savings account, every dollar in your paycheck and every dollar you leave at the restaurant to tip your server. All of them.
Politicians like to believe that deficit spending is a victimless crime. That’s not true. Every single person who has a dollar loses!
And with that massive amount of Federal debt, what is a very possible “solution” that Trump (or a future administration) may resort to in order to manage the massive debt load?
Well, Jeff Gundlach has an opinion on that: America’s Debt Cannot Keep Stacking Up. From The Economist:
…the national debt will mushroom beyond the government’s ability to service it, perhaps even beyond the credulity of the country’s creditors. In the coming years expect dollar debasement, debt restructuring or both.
“Dollar debasement” is what the Treasury is already doing – rolling old debt over into new debt, creating new dollars based on credit. That effort alone will cost us $1.8 trillion in 2025.
The dollar is failing as a store of value
The price of eggs can mean many things – or it can mean nothing.
The price of gold, on the other hand? That’s very closely correlated with the purchasing power of the dollar. I estimate that the majority of the moves we see in gold’s price are caused by nothing more than the declining purchasing power of the dollar.
The only good news I have for you today is that you can take steps now to build a hedge around your retirement’s purchasing power to make it resistant to the dollar devaluation and other factors affecting your food costs in retirement and all of the other things hit by inflation, too.
To do that, you need to diversify into stores of value that retain their value independent of whatever happens to the fiat currency so that even if the dollar is massively devalued, you can still buy food and the other things that you need in order to live your retirement in comfort.
My suggestion for the best diversification option is in precious metals by looking diversifying with physical silver and gold, whether for home delivery or with a Precious Metals IRA.