Wonder Bread's demise was exaggerated – but it did affect prices

http://www.guardian.co.uk/business/us-news-blog/2013/jan/16/wonder-bread-price-rise

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Wonder Bread may have gone out of existence last month – at least temporarily – but at least it went out with a bang. Apparently, prices for white bread rose significantly in December – more than any other consumer product tracked by the government.

At least one analyst thinks that it may be due to the scarcity of Wonder Bread on the shelves. When Hostess Brands went bankrupt last month, it temporarily ended the lives of a number of beloved (although nutritionally dubious) brands. Twinkies – gone. Ho-Hos – consigned to dusty warehouses. The pink, fluffy, coconut-and-marshmallow SnoBalls – utterly unmourned. But Wonder Bread isn't a snack you can disdain, because it is white bread, a staple food product in the United States. Its absence could have been enough to distort the prices for white bread.

"I think you just had a nostalgic event, where people connected with white bread," says Brian Sozzi, chief equities analyst at NBG Productions. "If that stuff is off the shelf, that impacted the supply chain to Walmart and other retailers."

Sozzi reasons that scarcity increased the price of white bread. The lack of Wonder Bread on the shelves may have caused grocers to increase the prices of the remaining Wonder Bread in stock – or raise the prices of other white-bread brands. Either way, all we know from the CPI is that prices of white bread went up dramatically in December compared to other products.

Today, the Bureau of Labor Statistics released the December numbers for the consumer price index (CPI). The CPI is a way to measure inflation, or the increase in prices for important goods like groceries and fuel. The Bureau of Labor Statistics chooses a basket of goods – almost like a shopping basket – and tracks their monthly prices. The goal is to see whether prices are rising fast enough that Americans are seeing inflation in their grocery prices.

Here's how it works: The BLS believes white bread (along with bacon, uncooked beef, doughnuts and fresh biscuits) is one of the food products that accurately tracks how much Americans are paying for groceries and fuel. The BLS surveys grocers to find out which brands they're selling and then the most popular brands get greater weight in the BLS's calculations. (The BLS doesn't disclose the brand data; I asked them.)

Hostess is big enough that its products would be part of the brands that could sway the CPI. Hostess was the No2 seller of bread products in 2011, according to Symphony/IRI Group. That includes all the Hostess bread brands, including Wonder Bread and Nature's Pride. The No1 baker, Bimbo, is a subsidiary of Mexico's Grupo Bimbo and sells bread under the brands of Arnold and Stroehmann.

Sure, skeptics might wonder whether there may be a yearly "stuffing cliff", in which white bread becomes particularly popular at the end of the year. Ten years of BLS data on the price of white bread, however, shows that there is no seasonal trend.

One economist said the theory was interesting, if hard to prove. If the scarcity of Wonder Bread did indeed sway the CPI, it probably won't happen again: last week, Hostess sold Wonder Bread and five other brands to Flower Foods, the maker of Tastykake sweets and Nature's Own bread.

Milton Ezrati, a senior economist at Lord Abbett, said the spike in white bread prices won't last very long. "It's possible but it certainly would be short-lived," he said. "It might have a modest effect in December but it means hardly anything for the long term."