Bread Prices & the Cost of Living Myth (Thesis #4)

The World Bank says that the Consumer Price Index (CPI), “reflects changes in the cost to the average consumer of acquiring a basket of goods and services.” (Figure 1)

Figure 1

Given the colloquial knowledge that “milk used to cost five cents” in 1950, the CPI would appear to show that the cost of living is higher today than in the past. This idea is common, but wrong. It is a faulty logic applied to the general economic experience. However, it does not hold true, especially in the case of staple goods. We can better appreciate the change in the cost of living when we adjust the price of a staple good for inflation. Let's look at the price action for bread per pound and its principal ingredient, wheat, in its own terms, per bushel.

At first glance, the cost of bread increased steadily from 1980 to 2019. (Figure 2)

Figure 2

But when you adjust the cost of bread for inflation using Bureau of Labor Statistics Consumer Price Index data, the chart shows a consumer staple sold at an incredibly stable rate. From 1982 to 2007, pre-Great Recession, the price never went beyond 1.45 or below 1.244, with an average price of 1.344. The highest price was 1.633 in 2009, but fell to 1.274 by 2019, the lowest price since 1989. The average price over the period 1980-2019 was 1.402. (Figure 3)

Figure 3

When you hold the raw price of bread per pound to the buying power of the 2019 dollar, adjusted for inflation, the price remains stable. Bread prices can be affected by any number of factors, principal among them are U.S. and world crop yields and international trade conditions. That said, one factor stabilizes the others to a great extent. That factor is congressional action in the form of subsidies. According to EWG Farm Subsidy Database, the "Wheat Subsidies in the United States totaled $47.8 billion from 1995-2019." This is not insignificant, but it is not the focus of this essay. However, it is safe to assume that subsidies stabilize prices, because they buffer producers from the impacts of climate, weather and international trade. (https://farm.ewg.org/progdetail.php?fips=00000&progcode=wheat)

Wheat is a large factor impacting bread prices. So, let's take a look at the price action for wheat. There are five classes of wheat, including: hard red winter, hard red spring, soft red winter, white, and durum and rye. We don't need to look at each class of wheat to get an idea about the relationship between wheat prices and bread prices, nor to identify the stable price action over the studied period. Figures 4 and 5 show that price action of Hard Red Winter (HRW) and Dark Northern Spring (DNS) wheat.

If the HRW price per bushel is not adjusted to CPI inflation adjusted 2019 dollars, the price appears to rise. While true in nominal terms, the real price shows a much more stable price relative to buying power today. That is, in terms of buying power, the price of HRW more than less oscillated between $12 and 4$. This is an important exercise to help realize that the price of goods in the past, in terms of buying power today, were relatively stable over the last 40 years. (Figure 4)

Figure 4

The HRW price did not rise. Instead, it stayed fairly stable relative to present day buying power data. The DWS price movement closely mirrors the HRW price movement, confirming a general wheat staple price movement. (Figure 5)

Figure 5

Thus, despite a variety of wheat classes on the market, the wheat market moves together. With that movement bread prices also move. The price of wheat rises from 1986-1990 and the price of bread likewise rises. In each successive bump in wheat prices, the price of bread rises in turn. The two most prominent such bumps occurred in 1995 and 2008.

My calculations find a naked correlation between the price of wheat per bushel to the price of bread per pound at 0.44. The correlation coefficient is naked (and not particularly strong), because there is much to do between the harvest of the wheat and the sale of the loaves. However, the claim that the prices are stable is satisfied, since the scatter plot "line of best fit" has a slope of approximately 0.053. In a graph with an x-axis as high as $1.6 and a y-axis as high as $12, a slope of that value means that the interval of change is marginal. (irrespective of year)

Fun fact, when we look at the price of bread within 5-year averages, it was the most expensive in the period from 2011-2015. The only two other 5-year periods close to that price were the periods from 1980-1985 and 2006-2010, each with an average of $1.44. That means that the price of bread was 8% higher from 2011-2015 than the next two highest periods. In contrast, bread was the cheapest from 2016-2018 at $1.17 per pound (data wanting for 2019-2020). That means that bread was 33% more expensive in the period from 2011-2015 than in the period from 2016-2018.

*additional thesis to be proved right or wrong in another essay: staple goods are being sowed and harvested at a rate and sum that outpaces population growth.*

The price of bread is traditionally a major staple. It is affected by the price of wheat. Absent wheat shortages, and in turn bread shortages, subsidies deprive wheat and bread prices of any severe price volatility. Two things follow. One, the price of a major staple did not rise, but instead stayed relatively stable. Two, from 1980-2019, the price of bread did not become burdensome relative to past economic conditions. The affect of inflation on the price of bread relative to buying power in terms of the 2019 dollar is marginal. The idea that the cost of living is rising at least with respect to staple foods is false.

I posit that the price of staple goods in the period from 1980-2019 is cheaper and more stable than in any other period on record (and is even stronger if we make the period from 1985-2020). I further posit that the decrease of the price of staple goods correlates strongly with the ever-more common pursuit of higher education, travel experiences and immaterial assets like 'true love' (a fatalistic notion of cosmic connection- literally a pursuit for 1 in 7.6 billion. Quite the odds.) and vain-glory (public acknowledgement). Even if toiling is still tedious and tiresome, the amount of energy saved and capital produced is much higher today (en masse) than in any other period. Thus, opportunities are on average much more abundant than ever before and are in part energized by stable prices for staple goods- the substance of bodily energy.

Lastly, I posit that the price of staple goods in real terms dropped gradually from 1900 to 2020. Staple goods are more abundant and more efficiently packaged, shipped and sold. The economic prosperity of the period from 1980-2020 is marked by stability and sufficiency.