Yes, there were no bananas. not in my neighborhood gourmet-food store where I usually overpay for fruit or at the two street vendors with the lesser-quality but lower-priced produce. When I finally located bananas at my other overpriced neighborhood gourmet-food store, they were spectacularly overpriced: $1.29 per lb. ($2.84 per kg), up 20% from what I paid locally the previous week. Bananaflation has arrived. Stunned by this increase, I momentarily thought that paying 99¢ apiece for navel oranges was a steal.
Bananas are the most frequently purchased grocery item in the U.S. You may think a banana is a natural product, but it's actually a manufactured one, since they are picked immature, shipped in special boats and then taken to ripening rooms that use ethylene gas to complete the job. The boats burn bunker fuel.
Bananaflation is happening because supplies are tighter this year and the major growers, Chiquita and Fresh Del Monte (a separate company from the apparently well-behaved canned Del Monte), have put themselves in a much better position to pass along cost increases than they had been in. This is instructive because you and I are now in a fight with the people who sell us stuff over who's going to pay for rising fuel and commodity costs. Car manufacturers, for instance, are reducing sales incentives because Japan's earthquake has constrained the supply and because there's higher demand in general. Procter & Gamble recently announced a price increase for diapers, but retailers like Walmart may have to wear it because diapers are a crucial price item for young families.
Last year, the banana companies got caught out: when bad weather trimmed their supplies, they were forced to buy on the spot market and couldn't pass on the costs quickly enough, which hurt profits. This year, different story. In January, Chiquita added a surcharge on bananas, citing natural disasters and higher oil. Chiquita hedged most of its fuel costs, so if bunker fuel rises, someone else pays.
It's part of what the company called "significantly different pricing dynamics," which means "We're in the driver's seat of this banana boat." North American banana pricing is up 42% in three years. If you're a shareholder, you've got to applaud management. In 2005 bananas were often selling for 45¢ per lb. (99¢ per kg) at retail, and nobody made money. Bananaflation will hit every grocery cart in the U.S. and figure in the headline inflation the Federal Reserve likes to ignore. I can deal with $4-per-gal. ($1.06 per L) gasoline of course I can, since I don't own a car but for me, bananas are a must. If I ate any more, I'd be swinging from trees. Banana buyers, it turns out, are not that price-sensitive. This is one price increase I am going to eat. Broccoli, don't even think about it.