All that agflation we’ve been seeing at the wholesale level is beginning to percolate into the price you pay at the grocery store.
Here’s JPMorgan’s Charles Grom on this morning’s CPI:
CPI Food at Home Rises, But Rate of Increase Below PPI. September’s CPI results represented the 5th consecutive month of year-over-year increases in the CPI Food at Home Index, which is an indication that food prices at retail continue to rise. To explain, this month, the YOY index rose 60 bps sequentially, from 0.8% to 1.4% – which we note is much higher than the ~10 bp average sequential change over the prior 3 months. However, in spite of the evidence that retail prices have continued to increase, we point out that the spread between PPI and CPI has widened once again and now stands at ~370 bps compared to ~300 bps in August. Recall that this spread suggests that wholesale price increases continue to outpace price hikes at retail (i.e. inflation is not being 100% passed through to consumers). Looking ahead, with recent spikes in commodity prices already reflected in the producer price index, we’ll be keeping a close watch to see if the gap will widen (potentially negative for grocer margins) or if retail prices will “catch up” to wholesale prices.
Here’s how it’s looking on a category-by-category basis:
And here’s the catch-up the CPI has to play with the PPI: