Groceries taking big bite out of consumers' pocketbooks
Rising gasoline prices have been getting all the attention, but the cost of another, more important staple is actually rising even more: food.
In the past year, food prices have increased 3.7 percent and are on track to jump by as much as 7 percent by year's end. The current increase is more than double the 1.8 percent jump the year before, based on the Labor Department's Consumer Price Index.
Meanwhile, gas prices rose 2.9 percent. Only the cost of health care rose more, and then just slightly.
While companies up and down the food chain see the increases, they're only beginning to pass them on to consumers. But with the start of grilling season — meat prices particularly hurt — some consumers are already tweaking their spending habits.
While food prices are rising pretty much across the board, items related to corn have been affected the most. That's because increasing demand for ethanol made from corn is driving up corn prices, which farmers use to feed their poultry and cattle. The high price of corn also affects prices of everything from cereal and other products with corn as an ingredient to the oils used to make potato chips.
But corn is only one culprit. Higher labor, packaging and fuel costs all play a role. Bad weather in California and Florida was the main contributor to a 20 percent spike in citrus fruit prices as well as higher prices for some vegetables. A drought this summer could cause prices to rise even more than current projections.
"We should all hope we have a really good growing season this year," said Ben Senauer, co-director of the University of Minnesota's Food Industry Center.
Prices are rising in each grocery aisle. In April, eggs cost 18.6 percent more than a year before. Whole chicken prices rose 7 percent. Bread is up nearly 6 percent and beefsteaks up 5.5 percent.
And high corn prices pushed farmers to devote record acreage to corn this summer, leaving some crops in short supply.
Senauer said many price increases haven't made their way to all stores yet, and many stores are absorbing the costs rather than passing them on to customers. "Right now the margins are simply being squeezed," he said.
"But that's not going to last forever," said Wells Fargo & Co. agricultural economist Michael Swanson, predicting no end in sight to food inflation. Swanson forecasts that food inflation will have risen this year at a rate not seen since 1990, when prices ended the year 5.8 percent higher.
Because food is a category that consumers can't cut from their budget, it's the cups of coffee, the entertainment dollars and the clothes-and-jewelry budget that are scaled back first. In April, retail sales fell 0.2 percent, the first decline in seven months, according to the Commerce Department. Yet consumer confidence rebounded in May, mainly because of consumers' cautiously optimistic view of business conditions.
Still, a stew of high gas prices, food costs, a slumping housing market and adjusting mortgages could be a recipe for trouble for strapped Americans with little wiggle room in their budgets.
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