Food prices on the rise in the US

Brazil , Commodities , Food , USA Mar 20, 2014 No Comments

Food priceAfter the FAO Food Price Index of 55 food items rose 2.6 percent last month, food prices in the US rose 0.4% in February, the most since September 2011, the Bureau of Labor Statistics said Tuesday. Beef and veal shoppers were socked with some of the biggest increases, as prices jumped 4% from January.

Surging prices for food staples from coffee to meat to vegetables are driving up the cost of groceries, pinching consumers and companies that are still grappling with a sluggish economic recovery. Four of the six major grocery store categories rose, with notable increases from meats, poultry, fish, eggs and dairy and related products, said Wells Fargo economists Sam Bullard and Sarah Watt House.

The index for fruits and vegetables rose 1.1% after five consecutive declines, according to the report, though the index for fresh vegetables declined 0.2%. The average price for red delicious apples in February was $1.31 per pound, up from $1.28 per pound in January but down compared with $1.43 per pound the same time in 2013.

Drought has gripped the U.S. and other food-producing regions in a vice, causing crop failure and more expenses for farmers. Now, federal forecasters have estimated that you may soon feel the costs at your grocery stores. Retail food prices are estimated to rise by as much as 3.5 percent this year, which is the biggest annual increase in three years, according to The Wall Street Journal.

Restaurants have absorbed past food price increases. But its not clear whether restaurants can absorb the full cost of those increases this time around, CBS business analyst Jill Schlesinger said.

Drought in Brazil, the world’s largest producer of coffee, sugar and oranges, has increased coffee prices, while dry weather in Southeast Asia has boosted prices for cooking oils such as palm oil.

In the US, much of the rise in the food cost comes from higher meat and dairy prices, due in part to tight cattle supplies after years of drought in states such as Texas and California and rising milk demand from fast-growing Asian countries. In futures markets, coffee prices have soared so far this year more than 70%, hogs are up 42% on disease concerns and cocoa has climbed 12% on rising demand, particularly from emerging markets.

Overall, food prices are up “a manageable” 1.4 percent year-over-year. “Consumer inflation remains benign in the first quarter, trending well below 2 percent,” Wells Fargo economists said. “However, if our strengthening outlook unfolds as we project, inflation should pick up over the year.”

Core inflation — a measure that excludes the more volatile items such as food and energy — also rose by 0.1 percent in February, matching the consensus forecast, according to Thomas Feltmate, an analyst with TD Economics. On a year-over-year basis, core CPI advanced by 1.6 percent, the government said.

The consumer price index and housing data released Tuesday are the last economic indicators to come out before the policy making Federal Open Market Committee meets to consider changes to monetary policy. The Federal Reserve will also use these indicators to decide the future course of action with regards its bond buying program.

Fed officials are expected to announce Wednesday that economic fundamentals are strong enough to allow a drawback of their bond buying program. Critics of the bond buying program were concerned that the steady flow of easy money would drive prices, but those concerns seem to have been laid to rest with the release of Tuesday’s numbers.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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