One of the great mysteries of the whole easing era — the past five years of unprecedented intervention and activism orchestrated by Fed Chairman Ben Bernanke — is that it hasn't led to rampant inflation...at least not yet.
While economists routinely strip out food and fuel when they look at pricing data to derive what they call a "core" figure, even the all-in figure has been eerily benign lately. The March consumer price index, or CPI, just released this morning, showed a 0.2% drop. But within the data, food prices remained flat, while the prior report showed a 1.6% increase in the food index over the past 12 months.
This "paltry" increase in food prices got Nick Colas, chief market strategist at ConvergEx Group, thinking. What if the items in the government's basket were different than what real consumers actually buy?
As Colas explains in the attached video, so-called "shopping cart inflation" is anything but benign.
"The things that people most commonly shop for are increasing in price much more quickly than that CPI basket inflation number we're used to seeing," says Colas, singling out the spike in staples such as lettuce (+24%) and apples (+11%) in a recent note to clients.
Part of the problem, he says, is due to the drought last summer. While that might seem like old news at this point, Colas says it will "have a very long shadow" on food prices this year, as the ripple effect from costlier corn and grains makes its way through animal feed and on to meat prices.
All in, Colas sees the food component rising 3% to 4% this year, but warns that what people eat will have a big impact on how much they spend.
"Our heavily shopped basket is rising much more quickly than the baseline numbers [used by the government]," he says. The point is that "inflation is ultimately a reflection of your personal situation; people are going to have very wide perceptions of what their inflationary situation is."
That's important because when it comes to inflation monitoring by the Fed, perception is as important as reality.
"Central bankers really focus on inflationary expectations," he says, noting the importance that these beliefs have on individual buying decisions, even though the ''official data" tells a different story.
"I think the Fed has to be very careful here, because something prosaic like food prices can alter expectations dramatically," Colas says.
And lest we forget, inflation and unemployment are the two benchmarks in the Fed's cross hairs right now when it comes to measuring the need and efficacy of their ongoing bond purchase program, aka QE or quantitative easing.
So from that perspective, lettuce might be worth a closer look.