Gas Prices May Be Falling, But Food Keeps Going Up
CNBC.com Senior Writer
Falling gas prices are easing the pain at the pump, but surging food costs are still causing consumers to get gored at the grocery store.
While gasoline is off more than 5 percent over the last month, prices for coffee, fruit, bacon, pasta and a slew of other food items have registered gains over the past year as high as 40 percent.
Just in April—the most recent month for which data is available—grapes went up nearly 30 percent, cabbage jumped about 17 percent and orange juice surged more than 5 percent.
So while the energy prices that helped fuel inflation have eased a bit recently, the items that Americans use to feed their families and host summertime picnics are continuing to rise and rise fast.
"This is a serious problem in the middle- to lower-income parts of the country," says Richard Hastings, consumer strategist at Global Hunter Securities in Newport Beach, Calif. "A little bit of inflation in the United States is actually a big problem because of how many lower-income people we have. It's a serious long-term fiscal problem."
The government's main gauge of inflation, the Consumer Price Index, is increasing at a 3.6 percent annualized rate, a higher reading but not enough to provoke any policy action to control prices.
But a look at prices compiled by the Bureau of Labor Statistics tells a different story.
The BLS numbers show a climate of continually rising prices across a wide swath of food categories—a tally of 76 items ranging from ground beef to soda to dairy products.
Measuring the past month's performance, the BLS found prices gained on 45 of the items it monitors. But over the past year the trend is much stronger, with 66 of the 76 items higher in price, some by staggering numbers.
Coffee, for instance, is up 40 percent. Celery is 28 percent higher while butter prices rose 26.4 percent. Rounding out the top five are bacon, at 23.5 percent, and cabbage, at 23.3 percent.
April 2011, meanwhile, was a bad month for fruit prices as well. Joining grapes as big gainers in the fruit aisle was grapefruit, which rose 15 percent. While cabbage led the vegetables, broccoli rose 2.5 percent in the month and about 12 percent for the past year. Smoked ham was 7 percent higher and potatoes jumped 6.1 percent.
Consumers already under intense pressure from rising unemploymentand falling home values, then, are getting no relief when it comes to putting food on the table.
"The labor market may already have reached its capabilities," Hastings said. "Sensitivity to low levels of inflation is quite high."
Federal Reserve Chairman Ben Bernanke has used the term "transitory" to address the surge in food and energy costs, reasoning that temporary factors such as weather and $4 a gallon gas were pressuring prices.
But that theory has run into roadblocks lately, in part because of the resistance of food prices to drops even in the wake of falling gasoline as well as a persistently nasty weather pattern that already has exacted a toll that will last throughout the year.
"Food prices are transitory only if you have weather that is transitory, if you don't have natural disaster problems," says Peter Cardillo, chief economist at Avalon Partners in New York. "It appears the past several years that things have gotten worse in terms of natural disasters. How many tornadoes have we had? All you need is something like that to happen during growing season in Idaho or Nebraska and that's the end of you."
Of course, not everything is higher.
Tomatoes dropped 21 percent in the past month and are down 6.5 percent in the past year. Boneless chicken breasts fell 5.5 percent last month and 4 percent over the past year. And wine conisseurs can drown their sorrows in a 24 percent price drop over the past month.
But there are few indications that, overall, the pattern of price hikes will abate anytime soon. That in turn will be bad news for an economy suffering under the twin yoke of high unemployment and rising inflation.
"We're going to have to get used to a good growth rate being 3 percent, simply because of globalizations and the problems that are attached to it," Cardillo says. "The glorious days of our economy growing at 5 or 6 percent are not likely to happen for many more years, if they ever happen."