Inflation Lessons From the Turkey Dinner for 10

Looking over the American Farm Bureau’s (AFB’s) annual report on the cost of an “average” Thanksgiving feast cost last week, I had two thoughts. One, huzzah, it is cheaper! Two, huh, this bears very little resemblance to my shopping list. Both illustrate some key inflation concepts for investors to bear in mind.

Seemingly most relevant to you, dear readers—the costs! Last year, the AFB’s benchmark Thanksgiving dinner for 10 (!!!) cost $64.05, over 30% higher than 2019.^[i] Mercifully, it is down a bit to $61.17 this year. Still way above prepandemic levels, but down somewhat from last year. Turkeys, heavy cream, milk and frozen peas are down, while dinner rolls and most fresh veggies are up a bit. So overall some relief, but not as much as you might want.

This is a pretty good microcosm for how inflation is still biting the country at large—and why stocks are looking past it. The inflation rate is now back down to average, as we discussed last week, and some narrow categories are actually in mild deflation. But relative to prepandemic normal, prices are high. At a basic human, emotional level, many folks want them to drop and feel little relief today.

But human desire is often inimical to what is good for markets and the economy, and so it is here. Falling prices—broad, lasting deflation—rarely happen for good reasons. If we accept that inflation is too much money chasing too few goods and services, then the inverse is true for deflation: too little money chasing too many goods and services. The Industrial Revolution brought society the good kind of deflation in the 19^th century—an overwhelming productivity boom that raised supply, lowered prices and improved living standards. We have also had mini versions in certain sectors, like Tech gadgets, over the years.

But for the most part, deflation comes from too little money chasing, which usually means a deep credit crunch or money supply contraction. Something else that results from this? Deep recession, with the Great Depression the prime example. The late, great Milton Friedman documented other episodes of deflation accompanying bank panics and recession in his magnum opus, A Monetary History of the United States, 1857 – 1960, and the most recent example is the US’s roughly year-long deflation bout during and after 2007 – 2009’s global financial crisis. You don’t need me to tell you those times weren’t fun.

I guess it is possible that food supply jumps enough to bring Thanksgiving meal prices back to prepandemic norms without indicating broader economic catastrophe. After all, the AFB reported that turkey prices are down because last year’s bird flu inflated the 2022 base. Now, is it all that probable we get back to 2019? No, given the rising costs of farming and ranching, but possible. Getting there likely takes a deep recession that tanks meat, dairy, grain and vegetable prices as well as the costs of agricultural labor, processing, refrigeration, trucking and grocery store operations.

So, would you rather have food prices fall as a silver lining to an awful recession that whacks household incomes and employment? Or higher but stable prices that accompany a modestly growing economy and rising disposable incomes? We have the latter right now, with prices falling here and there as prior supply hiccups even out. Dairy is a prime example on the Thanksgiving list. But for the most part, prices are rising much more slowly off a higher base.

Crucially, this is stocks’ preferred outcome, which has a lot to do with the big rally over the past year-plus. High inflation (and other things) hit sentiment hard in 2022, but as inflation filtered from goods and services to wages, it made households able to withstand it and move forward. The painful bulge has mostly worked its way through the system, people are regaining purchasing power and corporate earnings are inching back up. Stocks started pre-pricing this stabilization well before it became apparent in the data.

So the modest decrease in Thanksgiving prices is surely something to be thankful for.

That is, if these actually resemble your personal Thanksgiving costs, which brings us to my second point: The AFB Index is a broad gauge, not a personal cost-of-feasting index. Sort of like how CPI is a broad gauge of goods and services prices across the broader economy rather than a personal cost-of-living index. In this case, AFB’s “classic survey menu” is the same list of commonly purchased items it has used since 1986: a 16-lb turkey, 14-oz pack of cubed stuffing mix, 2 frozen pie crusts, half pint of whipping cream, pound of frozen peas, dozen dinner rolls, miscellaneous ingredients, 30-oz can of pumpkin pie mix, gallon of whole milk, 3 pounds of sweet potatoes, a 1 pound veggie tray and 12 ounces of fresh cranberries.

I can’t speak to its accuracy back then, given I was in preschool and am pretty sure that is the year we did Texas bbq instead of turkey. But I do know my overlap now is minimal. Turkey, of course, though I am paying California prices and opted for farm-raised heirloom. My “cubed stuffing mix” consists of the homemade cornbread cubes that are presently drying out on my kitchen table (corn meal, masa, salt, baking powder, baking soda, full-fat buttermilk, eggs, grass-fed butter)—so, way more than the $3.77 the AFB reports for the pre-packaged stuff. Oh, and I will need celery, onion and herbs to make the actual dish. My pie crusts will be homemade, so another pound of butter and organic pastry flour. Heavy cream? I’ll need three pints of the stuff (no added thickeners, please), between the pies and the ice cream (plus more eggs, sugar and spices). The pumpkin is actually a wash, as my sugar pie pumpkins cost about the same as that 30-oz can (and are way worth the extra effort despite the higher risk of injury). On the veggie front, we are more of a green beans, mushrooms and tomato soup family than peas and sweet potato casserole. But we do buy the rolls, all thanks to Pillsbury. And lastly, points for putting fresh cranberries on the list, but transforming those into a side also requires port wine, sugar, oranges and spices.

Now, I don’t expect the AFB’s index to match my needs. I am weird! The preceding paragraph is not normal! But also, we are all sort of outliers, each with our own traditions and shopping lists—true at Thanksgiving and exponentially true over an entire year. There is no way to track typical costs for a typical family. Typical just doesn’t exist.

So just as I can enjoy the Thanksgiving cost exercise without getting annoyed when it doesn’t match my grocery bill, investors should take what is relevant from CPI—a snapshot of how prices in general are trending across the nation and therefore whether too much money is sloshing around—without trying to force it to be a personal living cost tracker. When CPI doesn’t match your personal experience, it isn’t because CPI is wrong, but because the goods and services you buy most are in different proportions to that broad average (which probably includes a gazillion things you don’t buy).

And most importantly, friends, have a happy Thanksgiving!