May sees inflation rise 0.8 percent

By Sue Kirchhoff
USA Today

WASHINGTON — Food price increases aren't over.

The Labor Department said yesterday that wholesale inflation jumped 0.8 percent in May, seasonally adjusted. The increase — the biggest in a year — was fueled by rising energy prices and a 1.5 percent increase in the cost of food.

Dairy prices rose 6 percent from April and were up 29.3 percent from last May; beef and veal were up 5.4 percent from April and 17.5 percent from a year ago; and fresh fruit and melon prices rose 17.9 percent during the month and 15.8 percent on an annual basis.

Overall, wholesale food prices are up 7.4 percent from last year, though some products such as vegetables, pasta and fish have seen price declines.

The Labor Department said Tuesday in a separate report that retail dairy prices rose nearly 7 percent in May, with milk prices jumping almost 15 percent — the largest increase since the end of World War II. Retail dairy prices are up 20 percent in the six months ended in May. Milk is selling for around $4 a gallon in some areas and might go higher.

Food and beverage prices are up 5.1 percent at an annual rate the past three months.

"We cannot sustain the milk prices we have now for much longer," says Pat Westhoff, an economist at the Food and Agricultural Policy Research Institute at the University of Missouri. "Meat: There's more question there about whether that might not be a longer-lived situation."

Westhoff says tight supplies and strong demand affected prices. Americans are expected to eat more meat per capita this year, despite the first U.S. case of mad cow disease.

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

"We don't expect any month as dramatic as (May), but dairy prices still could rise a little bit more," says Ephraim Leibtag, a retail food price economist for the Agriculture Department's Economic Research Service, adding beef prices are expected to rise 6.5 percent to 7 percent this year, on top of a 9 percent jump last year.

May's big increase in milk prices was affected by an increase in the federal milk price, which is tied to market conditions, Leibtag says.

Dairy herd size and production have declined. Higher energy prices are adding to the food price pressures. Transportation, processing and fertilizer costs are all rising.

Michael Sansolo, senior vice president of the Food Marketing Institute, notes that the average consumer shops more than twice a week and is "very, very aware" of prices. Given the competitive nature of retailing, he says grocers will try to limit prices.