Posted on: Sunday, December 28, 2003

FOOD BILLS
Food costs will keep heading up

By Barbara Hagenbaugh
USA Today

WASHINGTON — U.S. households could see their annual food bills jump more than $270 on average in 2004 after a similar gain this year, government and private economists' forecasts suggest.

When putting together their predictions this month for consumer prices in 2004, private economists anticipated food prices would rise about 3 percent or more. That's twice the expected rate of inflation, and follows a year of escalating food costs. USA Today estimated the dollar value of a 3 percent increase in food prices using Census data and Commerce Department estimates of overall U.S. food expenses.

Rising prices charged by farmers for a variety of foods — beef, strawberries, wheat, soybeans, grapes, apples, oranges, lentils and sweet potatoes — are expected to mean higher prices for consumers. The increasing costs of transportation and energy also are expected factors.

In some cases, increases already are being felt. Inflation for food and beverages during the six months that ended in November was four times the overall inflation rate and exceeded gains even in medical care costs.

"As the world economy picks up, we see increased demand for food," said A.G. Edwards economist Gary Thayer. Already, demand nearly outstrips supply. "If we were to have a weather problem on top of this, we could have a significant problem," he said.

Because food prices are an important and often unchangeable part of household budgets, farmers and retailers can pass along increased costs.

U.S. households on average spent more than $9,000 for food at home and in restaurants in 2002, the third-biggest expenditure after housing and medical care, which also have risen substantially in cost.

So while overall inflation has been the lowest in decades, many households are seeing crucial bills rise.

"Where the inflation really has hit hard is on the truly average, middle- to lower-income individuals," said Joel Naroff of Naroff Economic Advisors.

The U.S. Department of Agriculture in November predicted food prices would rise 2 percent to 3 percent next year. Driving the higher prices are:

• Demand. Improving global economies are expected to lead to higher salaries, giving consumers more to spend.

• Energy. Rising prices through 2003 affect a number of agricultural costs, including fertilizers and electricity.

• Transportation. Higher costs for diesel fuel and extra security have increased the cost to truck food products and import from overseas.

• Dollar. In the past year, the dollar has fallen 14 percent against a basket of major currencies, making imports more expensive.