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Friday
Jun222012

Impact of Commodity Prices on the Consumer

In the chart below we have calculated the cumulative daily price change of the major food and energy commodities in the CRB index (Corn, Soy, Wheat, Cattle, Hogs, Oil and Natural Gas) since the beginning of 2008.  We then multiplied the changes by the annual per capita consumption of each item.  When the line is in the red zone, commodity prices are acting as a tax on consumers, and when it is in the green zone, commodity prices are acting as a windfall.  While this method may oversimplify the actual costs, it provides a good idea of how changes in commodity prices have impacted consumers' wallets over the last three and a half years.

From the start to the middle of 2008, the rapid increase in commodity prices was a huge headwind for the consumer.  In the span of less than a year, consumers were spending an average of $4.77 per person per day more than they were at the start of the year because of the rise in commodity prices.  The peak in '08 was followed by an equally rapid decline through early 2009.  What was once a massive indirect tax on consumers quickly turned into a windfall of close to $5 per person per day.

After bottoming out in early 2009, commodities once again began an upward climb, but this time the increase was much more gradual in nature.  In the span of more than two years, the entire benefit (and then some) of lower commodity prices had been erased.   Since that peak back in early 2011, lower commodity prices have once again been providing a tailwind for the consumer.  In fact, as of yesterday's close, the average American was seeing a $2.17 daily windfall due to the change in commodity prices since the start of 2008.  Two dollars may not sound like much, but on an annualized basis it works out to about $795 per person per year, or $3,175 per year for a family of four.  With a median household income for families in the United States in 2010 of $61,544, this works out to more than 5% of the 'median' family's income.

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