close [X]

Higher Inflation Rate Leads to Declines in Real Earnings

Market Intel / November 19, 2018

The report on October inflation, released Nov. 14, was noticeably different than last month’s. Overall, the consumer price index rose by 0.3 percent over September’s values. Recall that September’s numbers were up only 0.1 percent from August levels. While this month-over-month change would convert to an annual rate of over 3 percent, the actual year-over-year change from October 2017 levels is only 2.5 percent.

Gasoline price increases were a significant contributor to the rise in CPI. The report pegged gasoline costs as up 3 percent from the month earlier, 16 percent higher than a year ago. Fuel oil costs were up 3.7 percent from September as households are filling tanks, and up 26 percent from last year. Energy costs associated with electricity were also up more than 2 percent but have risen less than 1 percent from last year. Natural gas costs, on the other hand, were down 0.6 percent and are off more than 2 percent from a year ago.

The other category showing a more than 2 percent month-over-month increase was used cars and trucks, up 2.6 percent this month after being off 3 percent the month before. On an annual basis, used car and truck prices are only up 0.6 percent.

Food prices dipped a 10th of a percent, with at home food costs down 0.2 percent and away from home food up a 10th. Compared to a year ago, at home food prices are all but unchanged, with away from home food costs up 2.5 percent. Within the food category, fruits and vegetables were down 0.7 percent, cereals and bakery goods down 0.6 percent with dairy off 0.4 percent. Meat and related animal protein prices were unchanged for the month.

The core CPI – the index without energy and food costs incorporated – was up 0.2 percent over September when the core index was also up 0.2 percent. Shelter costs, rent and the owners’ equivalent of rent rose by 0.2 and 0.3 percent, respectively.  Shelter costs, rent and the owners’ equivalent of rent is the largest single component of the CPI, accounting for nearly a third of the overall index.

This slightly higher inflationary measure this month combined with a 0.2 percent increase in nominal earnings to give a 0.1 percent decline in real earnings. Measured on a year-over-year basis, real earnings are up 0.7 percent.

Going forward, energy and food costs are likely to continue to moderate price pressure. The oil supply glut and depressed agricultural commodity prices should both contribute to price moderation. Labor costs and the flow-through effects of higher tariffs, however, will likely add to cost increases and to the extent they are able, manufacturers and retailers will try to move those higher costs through the system. So far, the Federal Reserve target for inflation in the 2-3 percent range seems to be well in line with the data.

Contact:
Bob Young
President
Agricultural Prospects
bob@agriculturalprospects.com
 

Share This Article

Credit: Edbrown05~commonswiki / CC0 

On July 26, the Department of Labor published a proposed rule that would amend its regulations regarding certain provisions of the H-2A program. Among the many changes in the proposed rule are revisions to the methodologies used to determine the Adverse Effect Wage Rate. Rather than a single AEWR for all H-2A workers within a region, DOL has proposed AEWRs by agricultural occupation. The proposal reflects the department's concern that the current AEWR methodology for field and livestock workers (combined) may have an adverse effect on the wages of workers in higher-paid agricultural occupations, such as farmworker supervisors and construction laborers on farms. Following the data supplied by DOL in the proposed rule, this Market Intel will look at what the proposal means for farms utilizing the H-2A program.

Full Article
Credit: CC BY 2.0 

While on the higher side of pre-report estimates, the USDA September Crop Production report shows corn and soybeans yields are down from 2018 and lower than the projections posted in the USDA August Crop Production report.

Full Article