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$10 bread is the new $5 gas as demand for staples declines

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(Bloomberg) — People really start noticing inflation when it shows up in things they regularly buy. That’s why gasoline and milk get so much attention. Add bread to the growing list of staples that are rising in price and dampening consumer sentiment.

Amid the highest U.S. inflation in four decades, bread prices have skyrocketed this year, pushing more premium options to an unheard-of $10 a loaf and more.

“It’s like being punched in the nose,” said Mark Cohen, director of retail research at Columbia University. These are prices that “nobody has seen before” and have the same impact as $5 a gallon gasoline, he says.

The big question for the US economy is how long consumer demand can last in the face of such inflation. When shoppers worry about their finances, they traditionally cut back on optional items, and they do (see Netflix and Peloton).

But cracks in demand extend to essential goods. Shoppers are skipping bread aisles, with single purchases at U.S. grocers down 2.7% year-over-year through July 2, according to NielsenIQ data. Americans are also buying less milk and eggs from retailers over the same period, though some of that decline can be attributed to a return to eating out.

Last week, two major packaged goods manufacturers said they were seeing a decline in demand. At PepsiCo Inc. price increases have weighed on sales volumes, including lower prices for its drinks (from sodas to juices) and snacks in North America last quarter. Conagra Brands Inc., maker of Slim Jim jerky and Hunts tomato sauce, plans to continue raising prices, although it acknowledges that the increase resulted in a 6% drop in sales.

All of this weighs heavily on Christa Hoffman, a 29-year-old self-proclaimed housewife with three children. She plans meals around weekly promotions and digital coupons, but that hasn’t stopped her from ditching things like juice boxes that have become too expensive. Rising meat prices have also pushed her to buy cheaper ground beef and plan more meat-free meals.

Hoffman, who lives in Brownsburg, Indiana, said in the message that the situation has made her stressed. “I feel like the month has just started and I’ve already spent $650 on groceries.”

The prices of gasoline and other commodities have declined over the past few weeks, giving some hope that inflation is cooling down. But bread can stay high for longer because it’s putting special pressure on top of rising transportation and labor costs that affect just about everything.

Russia’s invasion of Ukraine disrupted two of the world’s largest wheat exporters, pushing prices to record highs. Climate change is leading to more erratic and extreme weather, including droughts. Wheat has also been losing land in the US for years as farmers switch to more profitable crops like corn that can be used as biofuels.

The nearly $50 billion U.S. bakery industry is already facing the threat of changing consumer tastes due to the growing popularity of gluten-free diets, according to an IBISWorld researcher. Now there are fears that these price spikes could lead to another carb-cutting boom, like the South Beach diet craze in the early 2000s. Meanwhile, restaurants may be offering fewer free table breads or cut portions.

The price per pound of white bread in the US hit a record $1.69 in June, up 12% from a year earlier. Meanwhile, wheat bread also reached a record high of $2.22 per pound.

In Chicago’s Logan Square neighborhood, husband and wife Taylor and Brian Bruns are trying to keep a profit at their mountain-themed Flat & Point restaurant. This spring, they expanded their baked goods to sell sourdough loaves and whole grain breads at farmers’ markets across the city.

The couple priced their 2-pound loaves at $10, hoping to offset higher flour costs, as well as skyrocketing prices for eggs and butter. While the price tag has put off some buyers at the farmer’s market, Taylor Bruns says it’s fair because they use more expensive organic ingredients.

“We definitely got rebuffed,” she said.

Days after Russia’s invasion of Ukraine in late February, Chicago wheat futures reached their highest price ever, with more than a quarter of global exports at risk. Soybean oil, a common bread ingredient, has also risen.

Since then, prices have come down, especially recently amid fears of declining demand. However, benchmark wheat traded in the US is still more than 15% higher than a year ago. According to the Food and Agriculture Organization of the United Nations, global wheat prices rose nearly 50% last month after skyrocketing to near-record levels in May.

Falling prices will take time to get through the system because most bread baking companies buy ingredients months in advance.

There is also a threat of drought.

If implemented, the latest estimate of U.S. hard red winter wheat production used for bread flour production will be the lowest since at least the mid-1980s due to lack of rain. Harvests in states like Kansas have dwindled since a drought hit fields further north last year that hit parts of the Central Great Plains.

Wheat and bread price volatility is likely to continue into next year, if not longer, according to Arlan Suderman, chief commodities economist at StoneX Financial.

Back in Chicago, La Boulangerie & Co., a bakery and cafe with four outlets, recently raised menu prices by about 10% to offset higher costs covering oil and refrigerator repairs. The chain increased the price of its baguettes by 50 cents to about $4, while a loaf of buns went up to $11.50.

“It’s really hard because how much can you pay for a loaf of bread?” said owner Vincent Colombe. “Can you pay $20 for a loaf of bread? No. We are really caught between a rock and a hard place.”

© 2022 Bloomberg LP


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