Thursday, January 27, 2011
According to some of my colleagues, there is no inflation? Wake up!
Grocery prices increased at more than 50 percent the rate of inflation in 2010, according to data from the U.S. Bureau of Labor Statistics.
Food prices increased an average of 1.7 percent between November 2009 and November 2010, in comparison with a general inflation rate of only 1.1 percent. The greatest price increases were seen among meat, poultry, fish and eggs, which went up in cost by 5.8 percent. The price of sugar and sweets increased 1.2 percent, the price of fats and oils increased 3 percent and the price of dairy-based products increased 3.8 percent.
The only commodities to go up in price more than food were medical care and transportation.
"I noticed just this month that my grocery bill for the same old stuff -- cereal, eggs, milk, orange juice, peanut butter, bread -- spiked $25," said Sue Perry, deputy editor of "ShopSmart" magazine. "It was a bit of sticker shock."
The rises in price were caused in part by climate-related crop failures in several major food exporting countries. In addition, rising demand for corn from the biofuels industry has pushed up prices for animal feed, leading to higher meat, dairy and egg costs. Finally, rising fuel prices have increased food production and transportation costs as well.
Prices are only likely to keep rising. The Department of Agriculture has forecast a further 3 percent rise in food prices in 2011, but openly admits that the estimate is conservative.
"The USDA always plays it safe," said Wells Fargo agricultural economist Michael Swanson. Swanson predicted price increases of 4 percent, the highest since the 5.5 percent increases that led to riots worldwide in 2008.
Major food producers including Kraft and General Mills have already announced plans to increase the prices of their products. Just how much of that increase will be passed along to consumers is uncertain, as retailers may try to force prices lower to keep shopper volume high.
"Food is a high-frequency driver," Swanson said. "So if stores like Walmart and Kmart want to get shoppers in the door, it's to their benefit to keep prices low."