Coffee and Inflation

Have you noticed that it's getting more expensive for a daily caffeine fix?

The Wall Street Journal recently reported that wholesale commodity coffee prices are at an all time high, and coffee shops just can't eat those costs anymore. I recently paid $3.00 (tax included) for a 20 ounce drip coffee at a local coffee shop. That's by-far the most I've ever paid for a cup of Joe.

(from ropesandpulleys on Flickr)

$3.00 is the exception, not the rule. Still, there's no denying that prices are going up, and it's almost guaranteed that they won't drop, even if the price of commodity green beans does.

Coffee inflation is interesting, because it happens in a way that's less noticeable than other goods and services. I know people who watch the price of gasoline like a hawk. They known, down to the penny, what a gallon costs at all times. Similarly, people are well aware when their rent or mortgage payments increase, for example. So why less attention to coffee?

It probably has to do with the fact that coffee prices aren't posted on giant boards all over the city for every person to see on a daily basis, like gasoline. Coffee is also generally a relatively small daily expense. Even if the monthly total that people spend on the drink is high, what's a couple more cents every day? This is unlike rent, where even a small increase can appear to be very large.

My coffee consumption isn't going to go down because the prices is going up. I still enjoy what economics call consumer surplus - what I pay is actually less than what I'd be willing to pay. For now, that works for me.

1 comments:

    On March 20, 2011 Anonymous said...

    I heard coffee has a stronger correlation to inflation than even gold.