Food Costs Rise as Strapped Consumers Spend More on Food

Although official inflation rates remain low, the two spending categories driving what little inflation exists are food and fuel. New consumer spending numbers indicate why: Food and fuel are two of the few categories on which Americans are spending more money. Increased spending indicates to businesses that raising prices won’t cause most people to buy less, leaving them free to do just that.

David Rosenberg explains:

But 60% of that headline consumer spending print came from food and energy — everything else rose a tepid 0.2%. In fact, spending on durables or ‘big ticket’ items rose by less than 0.1% in its weakest showing in four months. Almost all the growth was in non-durables, which surged 1.8% and most of that were groceries and gasoline — the two ‘G’s. Services eked an advance of less than 0.2%, held back by housing/utilities.

In other words, most of the increase in consumer spending in January is driven by increasing spending on fuel and food, which are virtually the only consumer items increasing in cost. People aren’t necessarily buying that much more food or gas; they’re just spending more on it, because demand for those categories remains relatively stable regardless of cost.

Adding to the good news for consumers, Rosenberg notes that Americans are increasingly reliant on government transfers (which includes unemployment) to fund their meager purchases. Government transfers rose .7 percent between December and January and more than 12 percent between January 2009 and January 2010. Unemployment, welfare and Social Security payments are buying the increasingly expensive food and gas on which Americans rely, even as Sen. Jim Bunning (R-Ky.) keeps fighting to prevent long-term unemployed Americans from continuing to collect unemployment benefits.