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Major Inflation Turning Point Nears
Consumers hate buying gas.
It just has to be done over and over again.
But what really drives them crazy is the price action.
Whenever there is an oil price spike, refinery shutdown, or the seasonal change in blends, gas prices surge.
But when the event passes they don’t drop nearly as fast.
That’s because gas prices are “sticky.”
It’s not some grand conspiracy.
It’s just a rational reaction from refiners and retailers to squeeze a bit more profit out of the situation.
But the same thing is happening to food prices now, but it’s about to take a major turn.
Food Inflation: Getting Sticky With It
Food prices have been one of the stickiest of the current inflationary storm.
As we’ve long surmised, a 38% increase in money supply will lead to 38% average increase in prices.
That was an average across the board for goods and services though.
Food was going to be an exception.
As more money flowed to essentials (like food) and less to luxuries, many foods would soar past 38% price increases.
That has largely happened according to the Food Prices from the Federal Reserve in this chart:
Food prices were steady up until the 1970s.
Then the inflationary system was created and food prices rose steadily since then.
But 2020 was another turning point when they really took off.
The “official” measure of food prices has risen 24 since 2020 and, looking at the chart, are headed higher.
But we’ve got some good news that food prices may finally be turning.
And the canary in this coal mine is chicken wings.
Chicken wings are some of the most economically sensitive meat products on the market today.
Wing prices became so volatile that many restaurants went as far as to just list “market price” for them..
That’s all changed in the last year though.
This image from the U.S. Department of Agriculture shows check win wholesale and retail prices going back to 2019:
You can see the retail and wholesale cost per pound were steady leading up to the pandemic.
Retail was between $2.50 and $3.00 per pound and wholesale was about $1.00 per pound less.
Between 2020 and mid-2021 wholesale prices more than doubled.
But since then they’ve fallen from a peak of over $3.00 per pound to less than $1.00 per pound today.
That’s actually lower than the wholesale price throughout 2019 and 2020.
But retail prices haven’t fallen nearly as much. They’re still right where they were in 2019 and 2020.
They’ve corrected a bit, but they still have a $1.50 premium over wholesale prices.
If that returns to the historical norm of $1.00 premium per pound, that’d be another 20% drop in retail prices.
And, given how much prices are down, it would be just as profitable for producers at that price too.
...Aaaand We All Fall Down
Chicken wings are just the start.
Money supply is dropping as the chart below shows.
The prices for many things will follow.
There are other problems that will come with this money supply drop (a few big problems too), but ongoing high inflation isn’t one of them.