FOOD AT HOME INFLATION (PPC)
February’s CPI report will be released on Thursday. Food at home in January was up 7.4%, accelerating from 6.5% in January. The base effect is 10bps lower in February, but inflation has been running hotter at the cash registers. CPG inflation at grocery stores has been 10% or more since the week ended January 23 as seen in the chart below. The base effects beyond February decelerate at the same time CPG companies are passing through further price increases setting up for further acceleration in food at home inflation. Big Meat, blamed for food inflation by the Biden administration earlier is no longer an outlier.
Wheat surge impact in the bread aisle (FLO)
The current surge in agricultural commodities from wheat, corn, soybeans to gasoline and fertilizer is causing inflation, food insecurity, and hunger concerns globally. Ukraine and Russia combined account for about a quarter of the world's wheat production. In a country like Egypt, where price increases for subsidized bread can lead to civil unrest, the current surge in wheat prices is top of mind. In the U.S., the cost of wheat is only a minor component of the retail price of bread. The Economic Research Service estimates that, on average, farms receive about 14 cents of the retail dollar across all products. For wheat to bread, farmers receive about 7 cents of the retail dollar. While wheat prices and the PPI for bread manufacturing are correlated, the correlation coefficient over the past five years has only been 0.5, indicating a moderate correlation.
To pass on higher production costs, bread manufacturers need to raise prices to retailers with minimal demand impact from consumers. The correlation coefficient between CPI for bread and the PPI for bread manufacturers is higher at .65, but still indicating a moderate correlation. Wheat prices doubling would lead to a 7% increase in the price at retail if the price were passed on fully.
Flower Foods is the second-largest producer and marketer of packaged bakery foods in the U.S. It owns brands including Nature's Own, Dave's Killer Bread, and Wonder among others. 80% of sales are to the retail channel.
Return to the office (ACI)
According to Kastle Office Systems, the average office occupancy of the top ten cities in the U.S. was 38% for the week ended March 2. Door swipes have inched higher since the year-end holidays, but are still below early December levels. The biggest week over week increases came from cities with lower occupancy levels as seen in the table below.
Many aspects of pre-pandemic life are returning as seen in the following chart, but office workers have been reluctant to return. Returning to 95% daily office occupancy seems unlikely, but there will be further increases in 2022. The large companies will have to lead the way by implementing more work rules for in-office attendance. The tightness in the labor market makes it difficult for the smaller companies to implement a return to the office first. Will higher gasoline prices be another reason to work from home?
