It is likely that food prices will be on an upswing soon. The economic upheaval of the United States over the last two years has had the good fortune of taking place in a climate of rather stable food pricing. This has been documented by the low increase in the Consumer Price Index (CPI), which is also used as a measure of inflation.
This summer has seen a groundswell of problems relating to the farming industry. This includes a cocoa plant disease in Africa, which accounts for over 20% of the world’s cocoa harvest, and bad coffee-bean harvests in Colombia, which accounts for over 10% of the world’s coffee harvest. Also, scorching hot summers in Russia have destroyed what accounts for about 14% of the world’s wheat harvest. Australia is also beginning to resume production of wheat after a year long drought ruined many wheat crops. Australia is responsible for about 9% of the world’s wheat harvest.
Wheat is a key ingredient in many animal feeds. Due to this, we are likely to see an increase in the cost of grain-fed meats; such as poultry, pork, chicken and beef. We are also likely to see an increase in egg, milk and cheese products. The USDA is already posting an year-over-year increase of 7% in July’s beef prices.
Population increases and increased demand from the growing Chinese middle class for meats and high protein foods will also result in climbing food prices over the next decade. Americans, in general, spend approximately 10% of their income on food but are likely to see that increase over the next decade, as competition over high protein foods causes a run-up in pricing.
Chocolate and coffee are also going to see price increases over both the short-term and the long-term, likely to start showing up after 6- and 9-month delivery contracts begin to expire.
Kroger, Spartan, Meijer and Wal-Mart are predicting increases in food pricing after Thanksgiving or Christmas, as prices are locked in by the economic giants until then.
Whether the inflation from the food industry spreads to other areas of the economic, we will have to wait and see. Last month’s increase in the CPI was under a 0.3% annualized rate, which when volatile energy prices are removed, resulted in an even smaller number. This signals a very small growth in the economy, much smaller than what analysts predicted.
