The Risk of Ignoring Eggflation

Ask the average investor what the core Consumer Price Index (CPI) is, and chances are they can give you a correct range. Probably the same when you ask them about the daily price of oil and gas. But ask them for the price of a pint of milk or a dozen eggs and they’ll likely scratch their heads.

Food is a major driver of costs for consumers around the world, and yet investors and economists tend to focus on core inflation (which excludes food and energy due to volatility) when trying to gauge ‘real’ underlying inflation pressures.

While developed countries spend less than 20% of their total expenditures on food (in the US and Canada, it’s less than 10%), most of the world now spends between 20-40%.

The price of eggs has become a symbol of inflation pressures and voter discontent in the US. A 15.2% surge in egg prices in January was one the drivers behind last week’s stronger-than-expected US inflation figures, sending bond yields higher and stocks down. This was the largest increase in the eggs index since June 2015, and it accounted for about two thirds of the total monthly food at home increase.

The general narrative is that food has become more affordable, but a closer look at the data shows an unmistakable long-term trend: food inflation is a persistent force and it may be time to rethink how inflation is measured and understood. By focusing on core CPI, we risk underestimating the real cost-of-living pressures and the policy responses required to contain them.

The long-term story versus recent trends

The very long-term trend (over 100 years) in food affordability has been encouraging. While food poverty still exists in parts of the world, global trends show increased availability and affordability. But it’s been a different story in recent years.

Shocking food price headlines seem more frequent, and even when we strip out short-term spikes — triggered by events like droughts or COVID — the United Nations Food and Agriculture Organization (FAO) Food Price Index reveals a clear upward trend since the early 2000s.

Figure 1: The myth of cheaper food – prices have actually been climbing for over 20 years

Source: Food and Agriculture Organization (FAO) of the United Nations. The FAO Food Price Index (FFPI) above is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups.

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What’s happening on the dinner plate?

Let’s break it down to something every grocery shopper already knows: food prices are rising, and they’re rising faster than most other costs. Take a look at a typical US dinner plate, represented by a basket of food indices (milk, fresh fruit and vegetables, meat, eggs, and ground beef) compared to core CPI (which excludes food and energy). 

Figure 2: Food prices have been consistently outpacing core CPI for two decades

Source: Bureau of Labor Statistics as at 31 January 2025.

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The data tells a clear story:

• Over the past two decades, food prices have not only risen but have done so at a pace far above core CPI
• Proteins, particularly meat and eggs, have seen the steepest increases, making them among the most inflation-sensitive items on the plate

Why food prices are under pressure

There are several reasons why food prices have been climbing and why this trend is likely to continue. Among them:

• Rising demand:  The growing wealth of developing economies is driving higher protein consumption, which is more resource-intensive to produce

• Climate change: Erratic weather patterns, droughts and other climate-related disruptions are impacting agricultural yields

• Water scarcity: Fresh water shortages are constraining food production in key regions

• Zoonotic outbreaks: Diseases like avian flu and African swine fever are disrupting livestock supply chains

• Geopolitical risks: Trade restrictions, conflicts and sanctions are creating further strain on global supply chains

What does this mean for inflation?

Food prices are rising faster than most other costs, but core CPI ignores this crucial component. Are we really capturing the true cost-of-living pressures if food is left out of the picture?
Understanding the drivers of food inflation and its divergence from broader measures is critical for navigating these dynamics. While short-term spikes may fade, the underlying pressures suggest that food prices will remain a key inflationary force in the years to come.

Bullish on equities, bearish bonds and oil

We pride ourselves on being unconstrained by a house view at Man Group, but that doesn’t mean we don’t share insights across teams.

We launched a monthly internal market poll in June 2024, in addition to our regular meetings, collecting insights from our investment professionals across systematic, discretionary, public and private markets teams.

The poll aggregates our diverse views into a simple scoring system, and with eight months of data under its belt, it has started to capture shifts in sentiment and trends during a time of significant market volatility.

Our latest poll ran from 5 February to 10 February. From equities and bonds to oil and the US dollar, here’s what the survey of over 100 investment professionals reveals.

1. S&P 500: Bullish, but confidence is fading

Sentiment on equities remains on the bullish side but has been trending downward since October 2024. The percentage of respondents expecting a “big up” is at its lowest since polling began in mid-2024. While optimism persists, outright enthusiasm appears to be waning.

Figure 3. US stocks: Aggregate sentiment

Source: Man Group as at 11 February 2025. The chart aggregates sentiment on the S&P 500, with bars showing the percentage of respondents expecting outcomes ranging from ‘Big up’ (more than +15%) to ‘Big down’ (more than -15%) over the next 12 months. The black line (right-hand axis) reflects the overall sentiment score, calculated by assigning weighted points to each response to gauge the net bullish or bearish outlook on equities. Views are provided for illustrative purposes and should not be relied upon as a recommendation.

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2. Bonds: Bearish on duration

On bonds, the consensus is more negative on longer-term bonds (duration), with expectations that yields will rise and prices will fall. This most likely reflects concerns that inflationary pressures will persist in the US, forcing the Federal Reserve to keep interest rates on hold for longer.

Figure 4. US 10-year Treasury yield: Aggregate sentiment

Source: Man Group as at 11 February 2025. This chart reflects sentiment on US 10-year Treasury yields, with bars showing the percentage of respondents forecasting outcomes from ‘Big up’ (yields rising by more than +90 basis points (bps)) to ‘Big down’ (yields falling by more than -90bps) over the next 12 months. The black line aggregates these responses into an overall sentiment score, highlighting whether participants are net bullish (expecting yields to fall) or bearish (expecting yields to rise). Views are provided for illustrative purposes and should not be relied upon as a recommendation.

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3. Oil: Relatively bearish

The poll has revealed a relatively bearish stance on oil since the US election last year. In the debate about whether Trump’s policies are positive for the oil price by boosting it through increased demand or depressing it through increased supply, our poll suggests a leaning towards the latter view.

Figure 5. Oil price: Aggregate sentiment

Source: Man Group as at 11 February 2025. The chart summarises sentiment on oil prices, with bars showing the percentage of respondents predicting outcomes ranging from ‘Big up’ (more than +30%, or above US$100 per barrel) to ‘Big down’ (more than -30%, or below US$50 per barrel). The black line provides the aggregated sentiment score, calculated by assigning weights to each response to indicate whether participants are leaning bullish or bearish on oil prices. Views are provided for illustrative purposes and should not be relied upon as a recommendation.

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4. US dollar: Skewing bearish

Sentiment on the US dollar is broadly neutral, though the poll hints at a growing bearish contingent. The light green bar (indicating expectations of a small down move) has steadily increased in recent months, suggesting a potential shift in outlook.

Figure 6. US dollar: Aggregate sentiment

Source: Man Group as at 11 February 2025. The chart illustrates sentiment on the US dollar (proxied by the US dollar index), with bars representing the percentage of respondents expecting outcomes from ‘Big up’ (more than +8%) to ‘Big down’ (more than -8%) over the next 12 months. The black line reflects the net sentiment score, calculated by assigning weighted points to each response, providing a measure of overall bullishness or bearishness on the dollar. Views are provided for illustrative purposes and should not be relied upon as a recommendation.

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All data Bloomberg unless otherwise stated.

With contributions from Albert Chu, a natural resources portfolio manager, and Henry Neville, a portfolio manager, Solutions at Man Group.