The good news for consumers is that gasoline prices are on a steady pattern lower. The bad news is you can't eat gas.
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So even as the pressure at the pump likely will continue to ease in the months ahead, economists believe it will be offset by a rise in food prices, which face a variety of pressures that will make inflationa lingering headache.
"Any benefit from lower energy prices will be absorbed by higher food and core inflation," Deutsche Bank economist Carl Riccadonna said in a recent analysis. "While some policymakers, including (Federal Reserve) Chairman (Ben) Bernanke, remain optimistic that transitory inflation pressures will recede in the coming months, we are less confident that such a development will occur."
Food inflation fears received at least a temporary reprieve when the Agriculture Department said Wednesday that world grain supplies are likely to be much strongernext year than originally anticipated.
Grain futures prices fell in Wednesday trading after the news led to anticipation that the higher stocks would keep a lid on prices, which have been slumping since hitting summertime highs.
But food prices are based on more than what happens in the grain markets.
Monetary policy also helps drive the market, so the cheap dollar will continue to apply upward pressure. While the weak greenback keeps exports low it can push up import prices, which have risen 14 percent in the past year for food.
Costs that add up along stages of production, which have been rising sharply, also contribute.
"The trend appears attributable to a combination of demand-driven global food price inflation as well as the depreciation in the trade-weighted dollar," Riccadonna said. "With respect to the latter, even though the dollar has strengthened somewhat over the past month, it is still considerably weak relative to its level over the past 15 years."
A glance at monthly and annual tracking from the Bureau of Labor Statisticsshows that food prices have continued to rise even as fuel and grain costs have dropped.
For August — the most recent reporting month — 44 of the 73 food types the BLS follows rose in price. On a year-over-year comparison, 61 foods posted gains.
In the monthly comparisons, the biggest gainers were fruit — oranges alone jumped nearly 18 percent — as well as bread and booze, with wine alone gaining about 34 percent.
At the same time, gas came off just slightly, dropping two cents a gallon for regular unleaded but seeing a huge annualized increase of 32 percent. Gas, however, tumbled from August to September (data not included in the BLS figures) to show a 6.5 percent drop.
The most recent Consumer Price Index reading showed continued upward pressure. The food index rose 0.5 percent in August on top of a 0.4 percent gain in July.
Food price pressures are causing concern on a global basis as well, as the world's economy slows and fears grow that poverty will be exacerbated from the various factors pushing costs higher.
"Demand from consumers in rapidly growing economies will increase, population will continue to grow, and further growth in biofuels will place additional demands on the food system," the United Nations Food and Agriculture Organization said in a report issued a few days ago.
"On the supply side, there are challenges due to increasingly scarce natural resources in some regions, as well as declining rates of yield growth for some commodities," the FAO added. "Food price volatility may increase due to stronger linkages between agricultural and energy markets, as well as an increased frequently of weather shocks."
Indeed, energy prices remain high despite the pullback and will provide only limited help.
Some economists, particularly at Fed, tend to be dismissive of food prices as an inflation indicator as they are considered highly volatile and thus not included in the "core" reading the government puts out each month, a number currently at 1.9 percent.
But with headline inflation nearing 4 percent and food at 4.6 percent on an annualized basis, the trend will be hard to ignore.
"Policymakers' resolve may be tested as seemingly 'transitory' inflation pressures prove to be more resilient due to rising food costs," Deutsche's Riccadonna said. "Policymakers may tend to focus on the core, but food inflation should not be ignored."
