Food Inflation Is Coming. Most Will Barely Notice.

The big story in the world over the past couple of weeks has been the Egyptian revolution. Many of us were captivated by the whole situation, from the protests in the streets to Mubarak’s inability to face reality and step down, although he eventually did. Only time will tell whether this ushers in a new era of prosperity for Egypt, or whether the military seizes this advantage to take power. Whatever happens, the rest of the world will be watching with interest.

One of the causes of the uprising is widely believed to be food inflation. Estimates have put the annual food inflation rate anywhere from 10-20%, which hits an economy filled with poverty like Egypt’s especially hard. There are countless examples of countries putting up with oppressive rule for a while, until something becomes the proverbial straw that breaks the camel’s back. People in China don’t care that they’re ruled by a totalitarian government because things are good.

For those of you that don’t know, I work for a potato chip company. One of the changes planned for the first quarter of this year is reducing the weight of certain bags, with most dropping in size from 5-10%. When Pepsico released earnings last week, they mentioned higher input prices for the reason behind lower profits. Kellogg’s cited higher grain prices as an issue as well, saying higher grain prices will be an issue for years to come.

There are all sorts of commodities hitting new highs, partially from increased inflation around the world and partially because of certain specific events. The price of cocoa is soaring because of all sorts of problems in Ivory Coast. Wheat prices have been on a tear for months now. It’s the same thing with beef prices, among all sorts of other foods. The bottom line is prices are going up, quickly.

For the most part, food companies are great at hiding food inflation from consumers. The most common and effective move is to simply lower the mass in each package, meaning the consumer pays the same for less product. The beauty of the decrease is it’s so small that the average consumer doesn’t notice. A select few will, and they will raise hell about it. Luckily for the rest of us, they’re a little crazy, so we don’t listen.

For most people, food doesn’t make up a huge amount of their budget, so they don’t really notice food inflation. If somebody makes $5000 per month and spends $500 of that on food, it isn’t really that big of a hit to increase that to $550-600 per month. Unless someone is really on top of their budget, they won’t even notice. In a place like Egypt, where food makes up over a third of the average budget, people notice higher prices. They don’t have the room in their budget to spend anymore on food.

Naturally, people will complain to their local grocer when they realize there’s only 220 grams worth of the favorite potato chip for the same price as the 235 gram bag they used to get. If I was in charge of the universe, there would be a special place in hell reserved for these people. It’s the same thing for people who complain about the price of gas to the kid pumping it. I want to punch them in the face every time I see it. It’s a reasonable response.

At the end of the day, most people don’t care enough about food prices to really notice and if they do, they don’t care. In North America, most of us are lucky enough to make enough money that we don’t spend the majority of our budget on food. I’ve started eating more at home since I started to lose weight, and I’m impressed on how little I’m spending. For most people, there’s all sorts of fat in their food budget they could trim if things get really bad. Most will just accept inflation, assuming they even notice. There’s really not much more someone can do, assuming they still want to eat.

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