Post by Blitz on Aug 12, 2022 7:26:03 GMT -5
It's a matter of where you measure the fat... Sort of like the Inflation Reduction Act and when Biden moronically explained that there was zero inflation because inflation went up by 8.5%... 
And now this...
What the Great Mayonnaise Inflation Mystery Can Tell Us About Prices
The plot thickens.
By Tracy Alloway - August 11, 2022 at 7:30 PM EDT
www.bloomberg.com/news/articles/2022-08-11/is-it-inflation-mayonnaise-prices-show-just-how-imperfect-cpi-can-be
Illustration: Steph Davidson
Last year, Pete Strates sat down with a local reporter to talk about the challenges of running a restaurant in the post-pandemic era.
What started as a conversation about the difficulty of hiring workers morphed into one about the increasing price of mayonnaise. The creamy condiment, Strates told NBC affiliate WXII, was costing him $200 more per week.
The resulting news article wasn’t particularly controversial. Local restaurants are “struggling due to inflation caused by pandemic,” it said. But all Hell(mann’s) would soon break loose following a tweet from the North Carolina Republican Party. “Bidenflation strikes Winston-Salem,” the NCGOP quipped.
‘Fat chance’ said dubious readers, who soon began crunching their own numbers on the cost of mayo, speculating over just how much of the spread Strates’ restaurant was going through. (Strates declined to comment for the purposes of this article, though our sources tell us that up to 40 gallons per week of mayonnaise would not be unusual for a restaurant of this type. Mayo, it seems, goes into everything.)
Strates and his restaurant had landed right in the middle of a wildly controversial debate over the cause — and extent — of inflation. Data released this week showed US consumer prices for July increasing 8.5% year-on-year. And while the figure was lower than economists had expected, it still stands at nearly the highest in four decades.
Inflation Spread Chart
CPI in the US is the highest in more than four decades
Source: Bureau of Labor Statistics
The stubbornness of higher inflation has surprised many investors, and flummoxed the central bankers who are charged with taming it. Federal Reserve Chair Jerome Powell was criticized when he conceded in June of this year, “We now understand better how little we understand about inflation.” He had a point.
Measuring price changes can be fiendishly difficult and highly subjective. Mayonnaise is a perfect example.
While there’s little doubt now that food inflation is real and people like Strates are feeling the bite, the key question is by how much? When we dived into mayo inflation last year, we found that Consumer Price Index (CPI) data from the Bureau of Labor Statistics showed prices increasing about 5.8% year-on-year in July 2021. More specific Producer Price Index (PPI) data showed the price of mayonnaise jumped by 5.4% that same month. But that PPI figure has since been revised to 10.6% — roughly double what was reported at the time.
So what’s going on? And how can price changes of a single condiment — a staple of restaurants, pantries and lunchboxes across America — be so difficult to pin down? Here’s what we learned from another deep dive into the Great Mayonnaise Inflation Mystery, and what it tells us about gauging the rising cost of living in the US.
The Mayo in Front of Our Faces
When we last looked at mayonnaise, we arrived at several conclusions. First, mayo is wildly divisive, villainized by public health officials and simultaneously praised by chefs. Second, modern mayonnaise is a far cry from its original conception as a mix of olive oil, eggs and garlic or lemon juice. Today, the biggest mayo manufacturers list soybean oil as their primary ingredient.
Thirdly, there are many ways to measure prices in America.
Perhaps the simplest way to gauge the cost of mayo is to simply look at what’s right in front of us. Thanks to last year’s sleuthing, we know that a bucket of Kraft Heinz Co.’s ‘extra heavy mayo’ was selling for about $77.20 on Amazon some 12 months ago. Today, it’s listed at $109.83 — and that price is only available through a limited number of suppliers. A pail of Kraft’s original mayo will cost you $66.32 versus $51.99 last year — a year-on-year increase of roughly 27%.
Source: Amazon
You can also see the longer-term data via Keepa.com, which tracks the price of items listed on Amazon and other major sites. What’s interesting is the intense volatility in prices that began around August of last year and hasn’t really stopped since.
Source: Keepa
But that volatility hasn’t been the case for all types of available mayonnaise. Prices for an eight-ounce bottle of Duke’s mayo, for example, have gone from about $4.66 to $4.78 in the same time period, an increase of just 2.6%. So based on prices for Duke’s mayo, the Fed is pretty close to its 2% annual inflation target! But judging by buckets of Kraft mayo, the Fed clearly needs to hike.
We’re being facetious, of course, but it should be pretty obvious that prices for a particular brand, type and size of mayo don’t tell the whole story of food price inflation in America. That’s why CPI — which attempts to gauge aggregate price changes across a wide variety of consumer goods and services — exists.
“There are certainly reasons that the CPI differs from what you might see on Amazon,” said Omair Sharif, founder of Inflation Insights LLC. “The CPI tries to capture where people shop. So, for the same item, they’ll have multiple prices from different outlets all over the country, including online. Just like you wouldn’t depend on prices for food bought only at Whole Foods to represent the average consumer, you wouldn’t rely just on Amazon either.”
He pointed out that food prices will also be weighted at the local level before they’re aggregated into the national index, meaning the price of mayo has varying degrees of significance depending on what part of the country you’re in. An index like “food at home” has a weight of about 10% in Chicago, 6.7% in Houston and 8.4% in New York. Each of these cities accounts for 2.9%, 1.8% and 7.1%, respectively, in the national index, meaning “food at home” has a weight of 0.29 in Chicago, 0.12 in Houston and 0.60 in New York.
Unilever Plc, which makes the iconic Hellmann’s, will try to smooth out volatility in commodity prices by agreeing to buy mayo in advance at a set price.Photographer: Tiffany Hagler-Geard/Bloomberg
“Total food at home in the US in December 2021 had a weight of 8.165,” Sharif notes. “That means that food at home in Chicago account for 3.6% of the US food at home index, Houston was worth 1.5%, and NYC was 7.3%. So, not only will price changes for food at home differ in each of these cities each month, but they’ll also impact the national index differently given that they have different weights.”
So ultimately, while we can look at price changes on individual types of mayo, we still have to find a way to aggregate the changes across the large group of goods that falls under the umbrella of ‘mayonnaise.’ Like the condiment itself, we have to mix the ingredients of different products, locations and consumption patterns together to come up with a satisfyingly representative whole.
There are also different ways to aggregate inflation. The Fed’s own preferred measure is known as the Personal Consumption Expenditure (PCE) price index, but it’s often eclipsed by CPI. (The divergence between the two — PCE versus CPI — is worth a whole other investigation). Not only are important things like social security payments and inflation-linked Treasuries tied to CPI, but the index can allow for a much greater degree of granularity when it comes to measuring prices.
That’s because it contains hundreds of narrower indices and smaller line items that allow you to look at changes in the cost of everything from “unleaded gas” to “indoor plants and flowers” and, yes, even mayonnaise. Sort of. The relevant entry-level CPI item is “other fats and oils including peanut butter,” which clearly includes a number of things other than mayo. Nevertheless, as mentioned previously, that figure stood at 5.8% year-on-year in July 2021.
And it’s only gone up since then, coming in at a stunning 19.4% in July 2022.
Fatter Prices Chart
CPI for mayonnaise, salad dressings and other oils keeps rising
Source: Bureau of Labor Statistics
Understanding the Data
However, as we discovered last year, you can also look at the cost of mayo from the perspective of producers as captured in another one of the US’s inflation indices, the PPI. The BLS describes the PPI as “one of the oldest continuous systems of statistical data” they publish, tracing its roots to an 1891 decision by the US Senate to examine the impact of tariffs on prices of a number of “agricultural and manufactured articles at home and abroad.”
Its earliest iteration draws on information from America’s ‘jobbers,’ or wholesalers, to show prices for hundreds of interesting and anachronistic consumer goods. (Sadly, there was no mayo listed, though it does contain prices for other food essentials such as “pure leaf lard.”)
Fast forward to today, and you can find the slippery sandwich spread included in the PPI line item known as “Mayonnaise, Dressing & Sauce.” In fact, there are dozens of PPI indices related to mayonnaise in one way or another, stretching from “Seasoning and Dressing” to “Prepared Sauces, ex-Tomato,” and “Pourable Type Salad Dressing.”
When we last looked at this data, the most precise price figure we were able to source from the smorgasbord of available indices came from a PPI commodity code for “mayonnaise, salad dressings and sandwich spreads” which showed prices rising 5.4% year-on-year in July 2021.
However, if you look up the same data now, you’ll find a very different picture. Now, the PPI commodity code for “mayonnaise, salad dressings and sandwich spreads” for the same month — July 2021 — is 10.6% year-on-year. That’s a near doubling in the rate of mayo inflation. What happened?
Here, we come to a perhaps underappreciated aspect of the PPI indices.
“All indexes in PPI are subject to revision up to four months,” said Joseph Kowal of the BLS. He notes that while a change from 5.4% to 10.6% would be unusual for something like the headline PPI figure, it is far more common in specific line items. That’s because the data relies on producers voluntarily responding to the BLS’s request for price quotes. If there are late responses in an index with a limited number of respondents, the figure may change as new replies come in.
That’s not the only thing that can cause revisions in PPI, however. Qualitative improvements to products can also influence the data, and Kowal’s favored example here is the humble refrigerator. Those of a certain age will remember the fridges of yesteryear as basic cooling boxes. You put your milk and your mayonnaise in them and that’s pretty much it.
Today, refrigerators are technological marvels that come loaded with semiconductor chips that allow for internet connectivity and various wireless features. So if you were measuring the cost of a fridge in 2022, compared with, say, 2002 — you would need to account for a very different product. Take for instance, a company that sold a basic refrigerator for $1,000. The following year it sells a new model for $1,150 but it’s also spending an extra $100 to make the more advanced appliance. In cases like that, the BLS would accommodate a qualitative adjustment, and the year-on-year PPI would equate to something like 5% despite a 15% change in the headline price.
It seems unlikely that there have been major technological strides in mayonnaise recently, however. As far as this reporter can ascertain, the product remains its usual slimy self. So what else could account for the revision in PPI?
Mayo production hinges on a few commodities like soybeans and eggs, with not one but two pandemics pushing the prices up 75% and 47%, respectively. Photographer: Tracy Alloway/Bloomberg
Kowal notes that unprocessed goods are much more volatile to revision than more manufactured ones. Companies may revise prices around quarter ends, or could see their own costs fluctuate massively as new buying agreements or hedging contracts go into effect. And it’s important to note here that while the mayo data was revised in July 2021, there was no data revision the following month.
“Spot prices are not the universe of prices,” said Kowal. “Is the spot price really the price of most goods? What if you have a contract? What if you’re a builder? You’re not going to the spot market every month and getting your lumber.”
Mayonnaise isn’t exactly unprocessed, but a big portion of it does hinge on a handful of commodities like soybeans and eggs. And if you’re wondering whether large producers of mayonnaise have hedging programs in place, the answer is yes, yes they do. Big food companies such as Restaurant Brands International Inc. (which, as the owner of Popeyes and Burger King, presumably goes through Olympic-sized swimming pools of mayo every year) and Unilever Plc (which makes the iconic Hellmann’s mayo) will try to smooth out volatility in commodity prices by agreeing to mayo them in advance at a set price.
Unilever, for instance, said in its latest results that 80% of its commodities spending for the second-half of the year is covered through existing inventories or contracts, noting that while hedging reduces “the levels of uncertainty for the second half” it also means “that it takes a little time for spot price falls — if they're sustained — to enter fully into our cost base.”
Let’s Make Mayo Together
So why exactly is the price of mayonnaise going up by so much?
The dynamic remains the same as the last time we looked. Consider, for instance, what goes into making a jar of mayo: the price of basic ingredients, labor costs, transport expenses and a mark-up (or profit). Many of these have arguably been rising in the post-Covid period, but perhaps the most significant increases have been in the basic building blocks.
In fact, multiple pandemics now seem to be contributing to higher prices. Bird flu in the US has killed some 30 million commercial and wild birds, pushing egg price inflation to 47% year-on-year in July. Wholesale prices are up some 185% since March 2020.
Meanwhile, benchmark soybean prices are up 75% in the same period, thanks in part to an outbreak of African Swine Fever in China back in 2018 and destroyed as much as a third of its pig supply. As the country built its hog herds back up and demanded more feedstock, soybean supplies were pressured and prices shot up.
Source: Bloomberg, BLS
As with many other commodities, Russia’s invasion of Ukraine has also helped push the cost of soybeans higher, crimping inventories of seed oils in general. Kraft specifically called out the higher cost of soybean oil in its second-quarter earnings, while Restaurant Brands International noted that “commodity prices have created real volatility in out business.” Now, hotter weather in the US and Europe is also expected to impact crops.
“The prices of many items are subject to swings in global markets and not easily resolved with monetary or fiscal policy, and firms quickly passed on higher input costs for labor, transportation, and packaging to consumers to protect margins,” said Sharif.
“In the case of mayo, it was the price of soybeans, which are traded globally. The price of soybeans surged in 2021 as China’s herd recovered from African Swine Fever, which pushed inventory to the lowest in 20 years,” he adds. “Additionally, you had the pressure on sunflower oil prices due to Russia’s invasion. I’m not sure rate hikes are going to resolve those kinds of global factors.”
A slide from Kewpie Corp.'s latest investor presentation shows plans for more prices increases.Source: Kewpie Corp.
Milton Friedman once described inflation as “always and everywhere a monetary phenomenon.” In the case of mayonnaise, however, that connection isn’t clear. Pandemic checks and emergency liquidity from the Federal Reserve may have temporarily jacked up demand for sandwich spreads, but it’s difficult to pin accelerated prices on tighter monetary policy.
And of course, mayo prices have risen outside the US too. Unilever’s New Zealand unit, Best Foods, announced this month that it would raise prices on its mayonnaise by 21%.
Even in Japan, which has been grappling with deflation for most of the past two decades, Kewpie Corp. — the maker of adorable doll-festooned plastic packets of mayonnaise — has raised prices, with another increase set to take effect in October. Meanwhile, in Brexit-addled Britain, one sandwich company said the price of mayo has gone up 80% in 2022 alone.
And therein lies the heart of the issue: While we can gauge the degree of mayo inflation in multiple ways, everyone’s experience of it will differ. Those who eschew fats will barely notice. Those who buy mayo by the gallon — like a British sandwich maker or a restauranteur in North Carolina — will feel the increased costs far more keenly.
Ultimately, the more you experience a price, the more sensitive you are to it going up. That’s one reason why the cost of gas is such a hot-button political issue — millions of Americans are confronted with it on a regular basis. The same goes for groceries and sandwich spreads.
And now this...
What the Great Mayonnaise Inflation Mystery Can Tell Us About Prices
The plot thickens.
By Tracy Alloway - August 11, 2022 at 7:30 PM EDT
www.bloomberg.com/news/articles/2022-08-11/is-it-inflation-mayonnaise-prices-show-just-how-imperfect-cpi-can-be
Illustration: Steph Davidson
Last year, Pete Strates sat down with a local reporter to talk about the challenges of running a restaurant in the post-pandemic era.
What started as a conversation about the difficulty of hiring workers morphed into one about the increasing price of mayonnaise. The creamy condiment, Strates told NBC affiliate WXII, was costing him $200 more per week.
The resulting news article wasn’t particularly controversial. Local restaurants are “struggling due to inflation caused by pandemic,” it said. But all Hell(mann’s) would soon break loose following a tweet from the North Carolina Republican Party. “Bidenflation strikes Winston-Salem,” the NCGOP quipped.
‘Fat chance’ said dubious readers, who soon began crunching their own numbers on the cost of mayo, speculating over just how much of the spread Strates’ restaurant was going through. (Strates declined to comment for the purposes of this article, though our sources tell us that up to 40 gallons per week of mayonnaise would not be unusual for a restaurant of this type. Mayo, it seems, goes into everything.)
Strates and his restaurant had landed right in the middle of a wildly controversial debate over the cause — and extent — of inflation. Data released this week showed US consumer prices for July increasing 8.5% year-on-year. And while the figure was lower than economists had expected, it still stands at nearly the highest in four decades.
Inflation Spread Chart
CPI in the US is the highest in more than four decades
Source: Bureau of Labor Statistics
The stubbornness of higher inflation has surprised many investors, and flummoxed the central bankers who are charged with taming it. Federal Reserve Chair Jerome Powell was criticized when he conceded in June of this year, “We now understand better how little we understand about inflation.” He had a point.
Measuring price changes can be fiendishly difficult and highly subjective. Mayonnaise is a perfect example.
While there’s little doubt now that food inflation is real and people like Strates are feeling the bite, the key question is by how much? When we dived into mayo inflation last year, we found that Consumer Price Index (CPI) data from the Bureau of Labor Statistics showed prices increasing about 5.8% year-on-year in July 2021. More specific Producer Price Index (PPI) data showed the price of mayonnaise jumped by 5.4% that same month. But that PPI figure has since been revised to 10.6% — roughly double what was reported at the time.
So what’s going on? And how can price changes of a single condiment — a staple of restaurants, pantries and lunchboxes across America — be so difficult to pin down? Here’s what we learned from another deep dive into the Great Mayonnaise Inflation Mystery, and what it tells us about gauging the rising cost of living in the US.
The Mayo in Front of Our Faces
When we last looked at mayonnaise, we arrived at several conclusions. First, mayo is wildly divisive, villainized by public health officials and simultaneously praised by chefs. Second, modern mayonnaise is a far cry from its original conception as a mix of olive oil, eggs and garlic or lemon juice. Today, the biggest mayo manufacturers list soybean oil as their primary ingredient.
Thirdly, there are many ways to measure prices in America.
Perhaps the simplest way to gauge the cost of mayo is to simply look at what’s right in front of us. Thanks to last year’s sleuthing, we know that a bucket of Kraft Heinz Co.’s ‘extra heavy mayo’ was selling for about $77.20 on Amazon some 12 months ago. Today, it’s listed at $109.83 — and that price is only available through a limited number of suppliers. A pail of Kraft’s original mayo will cost you $66.32 versus $51.99 last year — a year-on-year increase of roughly 27%.
Source: Amazon
You can also see the longer-term data via Keepa.com, which tracks the price of items listed on Amazon and other major sites. What’s interesting is the intense volatility in prices that began around August of last year and hasn’t really stopped since.
Source: Keepa
But that volatility hasn’t been the case for all types of available mayonnaise. Prices for an eight-ounce bottle of Duke’s mayo, for example, have gone from about $4.66 to $4.78 in the same time period, an increase of just 2.6%. So based on prices for Duke’s mayo, the Fed is pretty close to its 2% annual inflation target! But judging by buckets of Kraft mayo, the Fed clearly needs to hike.
We’re being facetious, of course, but it should be pretty obvious that prices for a particular brand, type and size of mayo don’t tell the whole story of food price inflation in America. That’s why CPI — which attempts to gauge aggregate price changes across a wide variety of consumer goods and services — exists.
“There are certainly reasons that the CPI differs from what you might see on Amazon,” said Omair Sharif, founder of Inflation Insights LLC. “The CPI tries to capture where people shop. So, for the same item, they’ll have multiple prices from different outlets all over the country, including online. Just like you wouldn’t depend on prices for food bought only at Whole Foods to represent the average consumer, you wouldn’t rely just on Amazon either.”
He pointed out that food prices will also be weighted at the local level before they’re aggregated into the national index, meaning the price of mayo has varying degrees of significance depending on what part of the country you’re in. An index like “food at home” has a weight of about 10% in Chicago, 6.7% in Houston and 8.4% in New York. Each of these cities accounts for 2.9%, 1.8% and 7.1%, respectively, in the national index, meaning “food at home” has a weight of 0.29 in Chicago, 0.12 in Houston and 0.60 in New York.
Unilever Plc, which makes the iconic Hellmann’s, will try to smooth out volatility in commodity prices by agreeing to buy mayo in advance at a set price.Photographer: Tiffany Hagler-Geard/Bloomberg
“Total food at home in the US in December 2021 had a weight of 8.165,” Sharif notes. “That means that food at home in Chicago account for 3.6% of the US food at home index, Houston was worth 1.5%, and NYC was 7.3%. So, not only will price changes for food at home differ in each of these cities each month, but they’ll also impact the national index differently given that they have different weights.”
So ultimately, while we can look at price changes on individual types of mayo, we still have to find a way to aggregate the changes across the large group of goods that falls under the umbrella of ‘mayonnaise.’ Like the condiment itself, we have to mix the ingredients of different products, locations and consumption patterns together to come up with a satisfyingly representative whole.
There are also different ways to aggregate inflation. The Fed’s own preferred measure is known as the Personal Consumption Expenditure (PCE) price index, but it’s often eclipsed by CPI. (The divergence between the two — PCE versus CPI — is worth a whole other investigation). Not only are important things like social security payments and inflation-linked Treasuries tied to CPI, but the index can allow for a much greater degree of granularity when it comes to measuring prices.
That’s because it contains hundreds of narrower indices and smaller line items that allow you to look at changes in the cost of everything from “unleaded gas” to “indoor plants and flowers” and, yes, even mayonnaise. Sort of. The relevant entry-level CPI item is “other fats and oils including peanut butter,” which clearly includes a number of things other than mayo. Nevertheless, as mentioned previously, that figure stood at 5.8% year-on-year in July 2021.
And it’s only gone up since then, coming in at a stunning 19.4% in July 2022.
Fatter Prices Chart
CPI for mayonnaise, salad dressings and other oils keeps rising
Source: Bureau of Labor Statistics
Understanding the Data
However, as we discovered last year, you can also look at the cost of mayo from the perspective of producers as captured in another one of the US’s inflation indices, the PPI. The BLS describes the PPI as “one of the oldest continuous systems of statistical data” they publish, tracing its roots to an 1891 decision by the US Senate to examine the impact of tariffs on prices of a number of “agricultural and manufactured articles at home and abroad.”
Its earliest iteration draws on information from America’s ‘jobbers,’ or wholesalers, to show prices for hundreds of interesting and anachronistic consumer goods. (Sadly, there was no mayo listed, though it does contain prices for other food essentials such as “pure leaf lard.”)
Fast forward to today, and you can find the slippery sandwich spread included in the PPI line item known as “Mayonnaise, Dressing & Sauce.” In fact, there are dozens of PPI indices related to mayonnaise in one way or another, stretching from “Seasoning and Dressing” to “Prepared Sauces, ex-Tomato,” and “Pourable Type Salad Dressing.”
When we last looked at this data, the most precise price figure we were able to source from the smorgasbord of available indices came from a PPI commodity code for “mayonnaise, salad dressings and sandwich spreads” which showed prices rising 5.4% year-on-year in July 2021.
However, if you look up the same data now, you’ll find a very different picture. Now, the PPI commodity code for “mayonnaise, salad dressings and sandwich spreads” for the same month — July 2021 — is 10.6% year-on-year. That’s a near doubling in the rate of mayo inflation. What happened?
Here, we come to a perhaps underappreciated aspect of the PPI indices.
“All indexes in PPI are subject to revision up to four months,” said Joseph Kowal of the BLS. He notes that while a change from 5.4% to 10.6% would be unusual for something like the headline PPI figure, it is far more common in specific line items. That’s because the data relies on producers voluntarily responding to the BLS’s request for price quotes. If there are late responses in an index with a limited number of respondents, the figure may change as new replies come in.
That’s not the only thing that can cause revisions in PPI, however. Qualitative improvements to products can also influence the data, and Kowal’s favored example here is the humble refrigerator. Those of a certain age will remember the fridges of yesteryear as basic cooling boxes. You put your milk and your mayonnaise in them and that’s pretty much it.
Today, refrigerators are technological marvels that come loaded with semiconductor chips that allow for internet connectivity and various wireless features. So if you were measuring the cost of a fridge in 2022, compared with, say, 2002 — you would need to account for a very different product. Take for instance, a company that sold a basic refrigerator for $1,000. The following year it sells a new model for $1,150 but it’s also spending an extra $100 to make the more advanced appliance. In cases like that, the BLS would accommodate a qualitative adjustment, and the year-on-year PPI would equate to something like 5% despite a 15% change in the headline price.
It seems unlikely that there have been major technological strides in mayonnaise recently, however. As far as this reporter can ascertain, the product remains its usual slimy self. So what else could account for the revision in PPI?
Mayo production hinges on a few commodities like soybeans and eggs, with not one but two pandemics pushing the prices up 75% and 47%, respectively. Photographer: Tracy Alloway/Bloomberg
Kowal notes that unprocessed goods are much more volatile to revision than more manufactured ones. Companies may revise prices around quarter ends, or could see their own costs fluctuate massively as new buying agreements or hedging contracts go into effect. And it’s important to note here that while the mayo data was revised in July 2021, there was no data revision the following month.
“Spot prices are not the universe of prices,” said Kowal. “Is the spot price really the price of most goods? What if you have a contract? What if you’re a builder? You’re not going to the spot market every month and getting your lumber.”
Mayonnaise isn’t exactly unprocessed, but a big portion of it does hinge on a handful of commodities like soybeans and eggs. And if you’re wondering whether large producers of mayonnaise have hedging programs in place, the answer is yes, yes they do. Big food companies such as Restaurant Brands International Inc. (which, as the owner of Popeyes and Burger King, presumably goes through Olympic-sized swimming pools of mayo every year) and Unilever Plc (which makes the iconic Hellmann’s mayo) will try to smooth out volatility in commodity prices by agreeing to mayo them in advance at a set price.
Unilever, for instance, said in its latest results that 80% of its commodities spending for the second-half of the year is covered through existing inventories or contracts, noting that while hedging reduces “the levels of uncertainty for the second half” it also means “that it takes a little time for spot price falls — if they're sustained — to enter fully into our cost base.”
Let’s Make Mayo Together
So why exactly is the price of mayonnaise going up by so much?
The dynamic remains the same as the last time we looked. Consider, for instance, what goes into making a jar of mayo: the price of basic ingredients, labor costs, transport expenses and a mark-up (or profit). Many of these have arguably been rising in the post-Covid period, but perhaps the most significant increases have been in the basic building blocks.
In fact, multiple pandemics now seem to be contributing to higher prices. Bird flu in the US has killed some 30 million commercial and wild birds, pushing egg price inflation to 47% year-on-year in July. Wholesale prices are up some 185% since March 2020.
Meanwhile, benchmark soybean prices are up 75% in the same period, thanks in part to an outbreak of African Swine Fever in China back in 2018 and destroyed as much as a third of its pig supply. As the country built its hog herds back up and demanded more feedstock, soybean supplies were pressured and prices shot up.
Source: Bloomberg, BLS
As with many other commodities, Russia’s invasion of Ukraine has also helped push the cost of soybeans higher, crimping inventories of seed oils in general. Kraft specifically called out the higher cost of soybean oil in its second-quarter earnings, while Restaurant Brands International noted that “commodity prices have created real volatility in out business.” Now, hotter weather in the US and Europe is also expected to impact crops.
“The prices of many items are subject to swings in global markets and not easily resolved with monetary or fiscal policy, and firms quickly passed on higher input costs for labor, transportation, and packaging to consumers to protect margins,” said Sharif.
“In the case of mayo, it was the price of soybeans, which are traded globally. The price of soybeans surged in 2021 as China’s herd recovered from African Swine Fever, which pushed inventory to the lowest in 20 years,” he adds. “Additionally, you had the pressure on sunflower oil prices due to Russia’s invasion. I’m not sure rate hikes are going to resolve those kinds of global factors.”
A slide from Kewpie Corp.'s latest investor presentation shows plans for more prices increases.Source: Kewpie Corp.
Milton Friedman once described inflation as “always and everywhere a monetary phenomenon.” In the case of mayonnaise, however, that connection isn’t clear. Pandemic checks and emergency liquidity from the Federal Reserve may have temporarily jacked up demand for sandwich spreads, but it’s difficult to pin accelerated prices on tighter monetary policy.
And of course, mayo prices have risen outside the US too. Unilever’s New Zealand unit, Best Foods, announced this month that it would raise prices on its mayonnaise by 21%.
Even in Japan, which has been grappling with deflation for most of the past two decades, Kewpie Corp. — the maker of adorable doll-festooned plastic packets of mayonnaise — has raised prices, with another increase set to take effect in October. Meanwhile, in Brexit-addled Britain, one sandwich company said the price of mayo has gone up 80% in 2022 alone.
And therein lies the heart of the issue: While we can gauge the degree of mayo inflation in multiple ways, everyone’s experience of it will differ. Those who eschew fats will barely notice. Those who buy mayo by the gallon — like a British sandwich maker or a restauranteur in North Carolina — will feel the increased costs far more keenly.
Ultimately, the more you experience a price, the more sensitive you are to it going up. That’s one reason why the cost of gas is such a hot-button political issue — millions of Americans are confronted with it on a regular basis. The same goes for groceries and sandwich spreads.