Food industry analysts have predicted that food prices in the U.S. will rise next year because of this summer's drought. Now the U.S. Department of Agriculture (USDA) is out with a forecast that agrees with that assessment.
Food prices, on average, have been flat thus far in 2012, according to USDA. The food-at-home Consumer Price Index (CPI) decreased 0.2 percent from January to July 2012, with deflationary pressure due to unusually low fruit and vegetable prices as well as decreased prices for fluid milk and pork.
The severe drought in the Midwest is affecting current prices for corn and soybeans as well as other field crops which should, in turn, drive up retail food prices. But typically it can take a few months for those increases to work their way into retail prices that affect consumers.
Meat prices should see strongest rise
But looking ahead to 2013, USDA says inflation should remain strong for most animal-based food products due to higher feed prices. At the same time inflation should be above the historical average for food categories such as cereals and bakery products as well as other foods.
"The full extent of the drought and its effects on commodity prices are as yet unknown," USDA said in its forecast.
At the present time the strongest increase in food prices are occurring at the animal-based product level. Beef prices were up 0.6 percent in July and are 6.6 percent above last July, with steak prices up 8.9 percent and ground beef prices up 5.8 percent.
Thinning the herd
The current drought is is expected to reduce cattle herd sizes as producers thin their herds to reduce feed costs. That could have a short-term effect of lowering beef costs as more beef hits the market.
Pork prices increased 0.4 percent in July and are one percent below last July's level. Retail prices have started to fall along with wholesale prices, but a turn-around at all stages of production is likely as feed costs rise, the government says.
Poultry prices increased 1.2 percent in July and are 6.1 percent above prices last year at this time, with chicken prices up 5.5 percent and other poultry prices, including turkey, up 8.2 percent. The poultry category is expected to be among the first to reflect price increases due to the drought.
Egg prices already rising
Eggs, meanwhile, were cheaper in July, falling in price by 0.3 percent. But they are now 2.4 percent above the July 2011 level. Egg price inflation is returning to historically average levels, as the domestic inventory of egg-laying hens in the U.S. continues to increase.
Fish and seafood prices were up 0.2 percent from June to July and are 1.6 percent above the July 2011 level.
So while food prices are expected to rise next year, USDA points out they will rise from rather low levels. In some food categories this year there has been deflation rather than inflation. Overall food inflation for 2012 is expected to be from three to four percent.
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