Cheaper Milk Signals Taming of U.S. Inflation: Chart of the Day

Lower milk prices are signaling that inflation will be less of an issue for U.S. consumers, according to Nicholas Colas, chief market strategist at ConvergEx Group.

The CHART OF THE DAY shows minimum amounts that farmers receive for milk every month, according to the U.S. Department of Agriculture, along with year-over-year percentage changes in a Labor Department index of grocery prices.

Next month’s average minimum under dairy-pricing regulations has been set at $18.74 per hundredweight, or about 12 gallons. The price has tumbled 24 percent since September, when milk peaked at $24.67 per hundredweight.

Prices are poised to fall further because this year’s warmer-than-normal weather has led to record milk production, Colas wrote yesterday in a report. March’s output amounted to

17.7 billion pounds, a 4.2 percent increase from a year earlier, according to a monthly report from the USDA.

“Milk is a key driver of consumer perceptions of inflation,” he wrote. The average American drinks 21 gallons of milk a year, according to USDA data that Colas cited.

The price decline during the past few months may be an “early warning sign about a slowing U.S. and global economy,” the New York-based strategist wrote. That’s the case, he added, because milk prices have tended to move in tandem with the pace of economic growth since the Great Depression.