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August 26th, 2009

U.S. Food Prices Likely to Rise Near Year’s End



Despite the recent decline in food prices, the U.S. Department of Agriculture (USDA) says they’re expecting that economic recovery will cause food prices to rise as the end of the year closes in. Compared with last year, food prices are down almost all the way across the board.

According to a report by the Economic Research Service of the USDA, grocery prices fell 0.5% in July from June, and have fallen 0.9% from the same period last year. However, the USDA is predicting that falling prices will give way to increases of 2-3% by year’s end:

“We do expect some price increases with the recovering economy,” said Ephraim Leibtag, a senior economist at the Agriculture Department. “Our numbers here imply there has to be some additional inflation in the next six months to get out of the negatives we’re in right now.”

Bill Lapp, president of Advanced Economic Solutions, a consulting firm that specializes in analysis of food commodity costs, said that even with only a modest gain this year, food inflation was expected to outpace the overall rise in the Consumer Price Index, which he said could be close to zero for the year.

Think of food prices like gas prices. Since they are both commodities, their recent price structures have been quite similar. While prices seem to be rising now, they are still well below historic highs. For example, after hitting record highs last July, gas prices dropped dramatically and have since began to tick upwards, but to no where close to their record numbers. The same has been true for corn prices. They are presently trading above historic averages, but remains far below the record-high prices seen last year.

Price increases as a result of firming demand are another indication that the economic is recovering. While no one likes higher prices, they aren’t completely unhealthy (provided they don’t get out of hand), because they can allow for higher profits and even wage gains.

Readers: help keep us in the loop, what are food prices doing in your area? Have you begun to notice any increases?

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