Global food inflation starting to hit US grocery budgets harder

food inflation

Global competition for basic agricultural commodities is increasing upward pressure on food prices for U.S. consumers. Image: CC NCinDC/Flickr

Food prices in the U.S. are rising at an accelerated rate. Rising global demand is raising the price of basic agricultural commodities, which has started to affect the grocery budgets of U.S. consumers. In addition to rising demand, the rising price of oil is a root cause of food inflation, which is expected to increase in the foreseeable future.

The meat of the food price issue

Food inflation in January rose 1.8 percent year-over-year, according to the U.S. Consumer Price Index. Rising fuel prices, rising demand and bad weather are driving the cost for basic agricultural commodities worldwide steadily upward. So far, the impact of these factors has been most dramatic in meat prices. For example, due to tightening supplies, corn prices reached a 30-month high in January. Because corn is used more for livestock feed rather than consumed directly, the cost of livestock is rising. Plus, people in China, India and other developing countries with growing economies want to eat more meat. U.S. beef exports have risen nearly 1.5 billion pounds in the past five years.

U.S. food price statistics

U.S. consumers are bidding against people in other countries for a limited global supply of meat. Pork prices are up 12 percent from a year ago, beef is up 6 percent and poultry 2 percent. Rising global commodity prices are also affecting other items in the grocery cart. January CPI data shows that prices for bread, milk, eggs and other staples are rising significantly.  Cereal prices are climbing due to wheat rising wheat prices, and coffee is at a premium because coffee bean prices jumped 77 percent last year. At the grocery store in 2011, pork prices are expected to rise the most, more than 10 percent. Beef prices are expected to rise more than 7 percent. U.S. consumers will be eating more chicken, which is expected to rise in price a little more than 5 percent.

U.S. food price outlook for 2011

Overall, U.S. food prices are expected to rise between 3 percent to 4 percent this year, according to the U.S. Department of Agriculture. As food inflation rises, U.S. policy makers are downplaying the impact on consumers. Last week Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that effect of food inflation on consumers will be “temporary and relatively modest.” The Fed doesn’t factor in food and energy prices when it calculates inflation, but more than 12 percent of after-tax income in U.S. households is now spent on fuel and food. The increases are adding up fast for consumers dealing with high unemployment and stagnant wage growth. In 2008, the average taxpayer earned $33,000 a year, far less than two decades ago.

Sources

CNNMoney.com

Seeking Alpha

Agrimoney.com

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