Friday, November 28, 2008

Commodity Deflation: Why Is My Bagel Still So Damn Expensive?

Gas prices at the pump are down, commodity prices of wheat and coffee are also down significantly.

Why Is My Coffee and Bagel Still So Expensive?

I started thinking about this question today as I was standing in line to buy my morning coffee at a local deli (definitely not a Starbucks), and it struck me that over the past months the huge run up in commodities prices had reversed, and prices have come down as hard as they rose.

Gas at the pump near my house is now down to about $2.30 a gallon (thank you New York State taxes for keeping the price up there), with the price tag to fill up my car now around $38 instead of the $60-$70 at the peak. That is definitely a good feeling. Talk about a wealth effect. Or maybe it is a less poor effect. Which brings me to my thoughts of the day.

When food, oil and all other commodity prices were running up, restaurants and food stores were talking about the debilitating cost of their raw materials, and how they would unfortunately have to raise their prices to account for it. Some said that they had been eating the costs up to this point, but now, with the relentless rise they would have to pass some of it along. They would hang up the newspaper articles so that customers would be aware of why prices had to go up, and shrug their shoulders and say that this was just an unfortunate fact of life. If they didn't need to do it, they wouldn't is what they would say.

The Charts Don't Lie

Now we have gotten to the point where this question needs to be asked. If you take a look at the chart of wheat below, the spike up and the significant move down are quite apparent.
Here is my simple question:

As consumers we understood the situation, the problem and the plight of the manufacturers of these products (my bagel and coffee beans turned into my coffee) as well as the retailers selling them (my local deli). Each cog in the chain had to resist the temptation of passing along all of their increased costs down to the link after them. The only ones that were benefiting at that point were the growers enjoying some of the highest prices for their crops.

Now that prices have enjoyed a fairly significant decline, the growers are no longer happy, the manufacturers and retailers seem to be happy having their materials costs reduced, and I remain unhappy paying these still inflated prices for my goods (bagel and coffee). Someone is enjoying the benefit of these lower prices, and I want some of it too.

Lower the prices of my food in the morning, and paste up the charts below so that I know why I am getting a break. Costs and prices can go both ways!!!

Wheat - Monthly Price - Commodity Prices


  1. I wonder if it's because they're selling fewer bagels and coffees so they're losing money anyway? Even if they drop the prices of those goods somewhat, it's still way cheaper to buy bagels and coffee and a supermarket, and not that difficult to duplicate what you get from a coffee shop. If I needed to save money, I'd cut those out first because it's so easy to buy the exact same thing from the supermarket.

  2. I work in a restaurant, and I have seen the prices of raw goods steadily increase for a long time. Now that the commodities indexes are dropping, I, too, would expect to see raw goods drop in price, but the fact is that a bag of flour costs me a bit more this week than last (up to 16.55 from 9.00 just a year ago). There are no price cuts on the horizon just yet.