Stock Market Insights: Skyrocketing Food Prices – Impact on Consumers & Investors

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Photo courtesy Dr. Richard Baker

In the late 80s and early 90s, the cool thing to do in our town was to go to the local store and buy a can of pop (soda for your northerners) and a candy bar, which we enjoyed while sitting on the hoods of our cars or the tailgates of our trucks. The crazy thing is that a can of pop and candy bar cost only a dollar back then. All prices have risen, but food prices have skyrocketed.

The inflation report released on February 29th shows that inflation rose 2.4% in January from a year ago, which is near the Federal Reserve’s (Fed) 2% target. There are several monthly inflation reports, but the Fed prefers to watch the Commerce Department’s personal consumption expenditures price index (PCE) report.

While I appreciate that prices are rising slower than before, you wouldn’t know it from restaurant and grocery store prices. According to the US Department of Agriculture, Americans spent over 11% of their salaries on food in 2023, the most since 1991.

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Restaurant prices were up over 5% in January 2024 compared to January 2023, and it is starting to deter customers. Denny’s and Wendy’s announced in their recent earnings reports that customer counts were down significantly, especially those customers with lower incomes. Wendy’s tried to fix the problem a few days ago by having its CEO announce that they would start “dynamic pricing” but had to backtrack after a huge customer backlash.

Big food maker executives at Hershey, Kraft Heinz, and Oreo maker Mondelez (can you say double stuffed) reported a drop in sales as prices increased. They blamed rising prices on higher employee pay and the minimum wage increase that went into effect in 22 states in January. Several food companies also noted that higher costs of raw ingredients like cocoa (which just hit a 46-year high), sugar, tomatoes, and beef.

Frustratingly, it probably isn’t going to get any better. The CEO of Kellanova, which makes Cheez-It, Pringles, and Pop-Tarts, said, “If you look historically after periods of inflation, there’s really no period you could point to where [food] prices go back down. People get begrudgingly used to it,” he told the Wall Street Journal.

Historically, fuel prices go up but will eventually come down from its high, but food prices seem more sticky, pun intended. When food prices go up, they don’t often go back down. Americans are changing how they eat and shop as they try to live during this time of record food inflation.

When food inflation is this high, it affects the stock market in several ways but here are three of the biggest. First, higher expenses for raw materials and salaries often lower company profits, negatively impacting stock prices. Secondly, the effect of rising prices creates investor uncertainty, making them think, “I thought things were getting better.” Lastly, it makes investors reduce their retirement savings, which slows market growth. I realize many low-income investors are struggling with their budgets, but I strongly encourage them to find other ways to cut costs that won’t affect their retirement future.

A pop and candy bar would set you back close to four bucks these days, but I don’t see that changing. I don’t drink pop anymore and have become more of a tea and coffee guy, but those are expensive, too. I guess American consumers and investors will need to adjust to this new normal. Ever wonder what chemicals are in that yellow pop?

Have a blessed week!

www.FerventWM.com

Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.

The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.

Food inflation

https://www.wsj.com/economy/consumers/its-been-30-years-since-food-ate-up-this-much-of-your-income-2e3dd3ed?mod=Searchresults_pos2&page=1

PCE report

https://www.wsj.com/livecoverage/stock-market-today-dow-jones-02-29-2024?mod=hp_lead_pos2

https://www.wsj.com/economy/central-banking/one-says-2-4-another-says-3-1-which-inflation-metric-is-right-5fbc6634

 

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