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Posted at 10:32 AM ET, 02/14/2011

What are you paying for when you buy a loaf of bread?

By Ezra Klein

Whatever it is, it's not wheat:

In December, says the Bureau of Labor Statistics, a one-pound loaf cost an average of $1.386. How much of that was the cost of wheat? As best I can tell, a bushel of wheat produces about 63 pounds of bread; wheat has lately been selling at around $10 a bushel; so we’re talking maybe 16 cents of that loaf of bread, or less than 12 percent of the price, reflecting the cost of wheat.

That's from Paul Krugman, who goes on to make some important points about inflation.

By Ezra Klein  | February 14, 2011; 10:32 AM ET
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This wholesale pricing for bread seems off by quite a bit. I purchased a couple of loafs of bread yesterday, and retail prices for mass-produced whole wheat bread were around $3.99 per loaf. I can't believe there is a profit of almost 300% on bread! I ended up buying some that was on sale for $2.50 per loaf.

Posted by: AuthorEditor | February 14, 2011 10:45 AM | Report abuse

Krugman probably should've added that we also don't spend most of our money on food because if you continue with the logic then we start to get into trouble:

A $0.05 rise in cost of wheat per bread is equivalent to a 30% change in the commodity price. If bread was all we bought then that would translate to a 3.6% change in consumer prices (inflation), which is above the 2% Fed target.


Posted by: chrisgaun | February 14, 2011 11:14 AM | Report abuse

For reference, in my grocery basket today:

4.6 lbs Pancetta $32.98
56.3 lbs Pork Butt $50.11
25 lbs X-Fine Sugar $23.25
15 lbs Romano Cheese $76.18

Yes, pork butt is cheaper today than it was yesterday; however, the price of the restaurant meal in which it is included is going up. Most of the cost differential goes to the federal government -- not to the hard-working farmers, chefs, and servers. Last year, Krugman shrugged and said higher federal expenditures were a "good thing".

Posted by: rmgregory | February 14, 2011 11:18 AM | Report abuse

Let's call this one "Paul Krugman drifts farther out of the known universe in order not to see what everyone else sees!"

If he had been paying any attention (which of course he has, but is simply dissembling) he would be writing that food producers have been warning for months about declining margins. This is of course because they have been absorbing the rising prices rather than passing them on. There is after all, as I have written before, only so much that McDonald's can charge for a double cheesburger.

Furthermore, if he knew anything about the grocery business (which he undoubtedly does) he would know that it has very thin margins across the board. Items like milk, bread, and eggs, are loss-leaders for these companies that get people in the door. So the shelf price of these items is not indicative of the damage of inflation, anymore than the "doorbusters" at Christmas time are an accurate reflection of prices for those items generally.

Again Krugman knows all this, it just doesn't suit his poiltical leanings.

Posted by: johnmarshall5446 | February 14, 2011 11:30 AM | Report abuse

"so we’re talking maybe 16 cents of that loaf of bread, or less than 12 percent of the price, reflecting the cost of wheat."

So if the price of wheat doubles (which it has since last summer), then bread prices either rise ~12% or margins suffer.

By the way, wheat also isn't the only commodity which impacts the price of bread.

If you have food and energy prices rapidly rising over a long enough period, it will bleed into wages, regardless of economic slack (go check out what unemployment and the CPI statistics were doing 1975-1982).

Another important factor to note is that ~25% of the CPI is owner's equivalent rent, which represents a guess of how much more people would pay themselves to live in their own homes, and this measure has been running at about 0% lately, meaning cash inflation is running a bit higher.

Posted by: justin84 | February 14, 2011 1:31 PM | Report abuse


Rent equivalent is finally starting to pick up, and will probably show up in the enxt report.

Posted by: johnmarshall5446 | February 14, 2011 1:42 PM | Report abuse

--*What are you paying for when you buy a loaf of bread? Whatever it is, it's not wheat*--

Klein might actually be right, there, as it would be a crunchy loaf that was made with raw wheat. One could likewise guffaw, "Whatever it is, it's not corn," even though most bread is powered by high fructose corn syrup.

However, one is still paying for the wheat and the corn that ends up in bread, so I gather Klein is just being inane.

Posted by: msoja | February 14, 2011 10:19 PM | Report abuse

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