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The iPhone 13 inflation indicator, and the issue we don’t talk about enough: Morning Brief

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Thursday, September 16, 2021

Apple’s hardware isn’t getting any pricier, but ‘you can’t eat an iPad’

Amid much fanfare, the latest iPhone iteration arrived this week, with more than a few grumbles about Apple’s (AAPL) lack of product innovation. But at least one aspect gave consumers a reason to celebrate.

CNBC’s Jon Fortt astutely observed that the House that Steve Jobs built opted to keep prices at iPhone 12 levels — effectively making the iPhone “inflation-proof.” Fortt surmised that a combination of short-term sacrifice, carrier subsidies and Apple’s first-rate engineering has given consumers a rare and unexpected price break for upgrading their phones.

The iPhone 13’s relative pricing reminds us that, until COVID-19 descended upon the world, technological advances played a huge role in boosting productivity and taming inflation. Whatever CEO Tim Cook’s rationale might be, Apple is defying a particularly nettlesome problem that’s throttling consumers: Prices everywhere are bubbling up, with no foreseeable end in sight.

All of which leads us to an issue that’s not getting nearly the attention it deserves. Nowhere has inflation had a bigger, yet mostly under-the-radar, impact than on what we eat.

Bloomberg highlighted the problem in a recent report which quoted United Nations data showing food inflation skyrocketing 31% year-over-year in July. The story also reminded readers that food riots triggered by spiking prices were a big driver of the Arab Spring protests of 2011 (as if the world needed any more civil unrest).

In addition, August’s consumer price index (CPI) revealed annual food inflation inching close to 4% in the last few months. According to DataTrek Research, U.S. food prices have jumped by 8% over the last two years, led by everyday protein staples like meats, poultry, fish and eggs.

Food prices have been pushed higher by a premium on proteins like fish, meat and poultry.

Food prices have been pushed higher by a premium on proteins like fish, meat and poultry.

“While protein inflation is volatile, the usual pattern is a sudden lift… followed by a subsequent decline,” Nicholas Colas, co-founder of DataTrek Research wrote on Wednesday. “We’ve had two increases in the recent past (2020, 2021), but no decline as of yet.”

Complicating matters is the fact that the U.S. imports hundreds of billions worth of food each year — far more than it ships abroad (alas, a story for another day). And in that arena, prices are also on the rise: August import price data showed food prices rose 0.6% month-over-month, and 10% year-over-year.

At least part of that narrative is being driven by soaring shipping costs, mostly attributed to sky high demand and global supply chain woes.

Estimating that global import prices rise by 10% whenever shipping costs double, Capital Economics’ Simon MacAdam wrote on Wednesday, “given that maritime shipping costs have never surged anywhere near as much as they have done during the past year, the full extent of the passthrough is difficult to predict.”

The longer-term impact on consumers isn’t entirely clear, but MacAdam noted that “if shipping costs were expected to fall soon, importers might be comfortable waiting for costs to normalize and hold off from raising prices.”

However, “going by charter rate futures for bulker vessels, traders have finally come around to the view in the past couple of months that shipping costs are not going to fall this side of Christmas and will stay way above pre-virus levels well into 2022.” The short version: Don’t expect any relief in grocery aisles, or restaurants for that matter, anytime soon.

All of which brings us back to the curious case of Apple, and one particularly relevant anecdote.

Back in 2011, then-New York Federal Reserve President William Dudley attempted to reassure Queens consumers about spiking food prices. The central banker cited the latest iPad that cost the same as the prior version as a reason why “you have to look at the prices of all things.”

As one can imagine, the analogy went down badly with Dudley’s working-class audience. One attendee tossed out a memorably biting quip: “I can’t eat an iPad.”

A decade later, it suffices to say that iPads — or iPhones — still aren’t edible. Policymakers would do well to remember that.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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What to watch today

Economy

  • 8:30 a.m. ET: Retail Sales Advance, month-over-month, August (-0.7% expected, -1.1% in July)

  • 8:30 a.m. ET: Retail Sales excluding autos and gas, August (unchanged expected, -0.7% in July)

  • 8:30 a.m. ET: Initial jobless claims, week ended Sept. 11 (323,000 expected, 310,000 during prior week)

  • 8:30 a.m. ET: Continuing Claims, week ended Sept. 4 (2.740 million expected, 2.783 million during prior week)

  • 8:30 a.m. ET: Philadelphia Fed Business Outlook Index, September (19.0 expected, 19.4 in August)

  • 10:00 a.m. ET: Business inventories, July (0.5% expected, 0.8% in June)

  • 4:00 p.m. ET: Total Net TIC Flows, July ($31.5 billion in June)

  • 4:00 p.m. ET: Net long-term TIC Flows, July ($110.9 billion in June)

Earnings

  • No notable reports scheduled for release

Politics

  • President Biden has a speech on the economy at 1:45 p.m. ET. The White House promised he will discuss efforts to “bring down costs and ensure that the backbone of the country, the middle class, can finally get a break.”

  • Over on Capitol Hill, lawmakers are largely away for a recess but a fence around the Capitol is being reinstalled ahead of a follow-up rally to Jan. 6 called the “Justice for J6,” which is planned for this weekend. The fencing is expected to be completed by tonight.

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