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Food price inflation highest in 17 years

Consumers in the United States may be spending a smaller amount of their disposable income on food -just 7.2 percent --figures are much higher in other parts of the world, according to the American Sheep Industry Association (ASI).

April 22, 2008  By American Sheep Industry Association

April 21, 2008

The United States is wrestling with the worst food inflation in 17 years, and analysts expect new data to show it's getting worse.

U.S. food prices rose 4 percent in 2007, compared with an average 2.5 percent annual rise for the last 15 years, according to the U.S. Department of Agriculture (USDA). The agency says 2008 could be worse, with a rise of as much as 4.5 percent.


The Department of Labor report released on Wednesday shows the U.S. Consumer Price Index rose at a 4 percent annual rate in the first three months of the year, up from last year's overall rise of 2.8 percent.

U.S. households still spend a smaller chunk of their income for foods than in any other country — 7.2 percent in 2006, according to the USDA. By contrast, the figure was 22 percent in Poland and more than 40 percent in Egypt and Vietnam.

Still, the higher U.S. prices seem eye-popping after years of low inflation. Eggs cost 25 percent more in February than they were a year ago, according to the USDA. Prices for milk and other dairy products jumped 13 percent; chicken and other poultry increased nearly 7 percent.

USDA economist Ephraim Leibtag explained the jumps in a recent presentation to the Food Marketing Institute, starting with the factors everyone knows about–sharply higher commodity costs for wheat, corn, soybeans and milk, plus higher energy and transportation costs.

The other reasons are more complex. Rapid economic growth in China and India has increased demand for meat there, and exports of U.S. products, such as corn, have set records as the weak dollar has made them cheaper. That has lowered the supply of corn available for sale in the United States, raising prices here. Ethanol production has also diverted corn from dinner tables and into fuel tanks.

Soybean prices have gone up as farmers switched more of their acreage to corn. Drought in Australia has even affected the price of bread, as it led to tighter global wheat supplies.
But groceries aren't the only thing the labor report shows steadily increasing. Prices at the pump are 4.4 percent higher than the previous peak level recorded in May of last year. Medical costs are 4.6 percent higher than a year ago and energy prices are up 2.9 percent, leaving everyone keeping their fingers crossed and trying to find new ways to save.


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