February Food PPI supports higher prices (KR)
The PPI index increased 0.8% MOM and 10.0% YOY in February. The PPI for food manufacturing accelerated 10bps from January to 14.2%. Against steepening base effects, the PPI for food manufacturing will likely decelerate. Higher costs do not necessarily translate to higher retail prices, but manufacturers in the current environment are trying to recover their margins. Food price increases for consumers are set to continue to accelerate in the coming months. We will do a deep dive into food price increases in our flash update call on Friday.
The PPI for supermarkets decelerated to 6.6% in February from 7.8% in January. The elevated rate makes it difficult for supermarkets to not pass wholesale price increases through.
Return to the office (ACI)
According to Kastle Office Systems, the average occupancy of the top ten cities in the U.S. was 40.5% for the week ended March 9. The 250bps week over week improvement was led by Dallas, Austin, and New York City, but all cities saw increases in occupancy. Door swipes reached just below the pandemic high of 40.6% for the week of December 3.
Houston has the second-highest occupancy level of the ten cities. 85% of Houston businesses are back in person or have plans to do so. According to Central Houston, the average worker is only showing up at the office about 10.7 days each month, compared to 17 before the pandemic.
Returning to 17 days in the office each month seems unlikely, but there will be further increases in 2022. The Texas cities may reach the upper limit of occupancy first as the state has been one of the first to re-open.
Truck rates off the highs (UTZ)
Cass Information Systems reported a 3.6% sequential increase on a seasonally adjusted basis in its freight shipments index. Volumes were still impacted by the Omicron variant and made up nearly half of the decline in January. Expenditures were up 7% seasonally adjusted from January to the highest level on record. Expenditures were up 42.2% YOY. Freight rates within the index were up 37% YOY (calculated with expenditures per shipment). The 75 cents one-week increase in fuel prices pushed TL freight costs 4% higher. Spot rates including fuel prices have come off their highs in January as seen in the following chart. Higher trucking costs have been a headwind for nearly all CPG companies over the past year, but the magnitudes have varied. Low value products delivered frequently are among the most impacted.
Strike vote (KR, ACI)
Union workers in Southern California authorized a strike vote to take place beginning on March 21. Contract discussions with Ralphs (Kroger), Vons (Albertsons), and Pavilions (Albertsons) have stalled after 12 days of negotiations. The labor contract expired on March 6. More strikes are likely with non-unionized wages increasing rapidly and inflation elevated.
