sealPurdue News

July 17, 1996

Retail food prices increase dramatically and unexpectedly

WEST LAFAYETTE, Ind. -- From May to June, retail food prices rose seven-tenths of a percent -- the largest increase in three years, according to the recent Consumer Price Index.

"Rising meat, poultry and dairy product prices were largely responsible for the increase," said Joe Uhl, Purdue University agricultural economist.

After falling for the past seven months, beef prices rose in June as a result of declining supplies. Strong foreign demand caused the rise in pork and poultry prices, while weather conditions pushed fresh fruit and vegetable prices upward after a May decline.

"Grocery store prices jumped 1 percent last month after holding steady in May," Uhl said. "Restaurant prices rose less than grocery store food prices in May."

Since the first of the year, grocery store prices have risen at a 4.7-percent annual rate, compared to last year's 2.8-percent rise. Uhl said higher prices for bacon, bread, milk, butter, chicken, oranges, apples and tomatoes have been largely responsible. Foodstore prices for eggs, ground beef, lettuce and coffee have fallen since January, he said. He added that food prices have increased faster than other prices so far this year.

"Rising wholesale food prices signal further increased food costs in the months ahead," Uhl said. "The government's producer price index for finished consumer foods increased 1.6 percent in June -- the largest rise in five years -- following stable prices in May and falling prices in April.

"However, for the first half of 1996, producer prices for consumer foods have increased at only a 2.8-percent annual rate, down from the 6.5-percent rate for the second half of 1995. Moderating beef and fresh vegetable prices were the main reasons for this slowing in the producer price index."

Uhl said many analysts are revising their 1996 food price forecasts upward as a result of continued increases in farm prices, and they fear that rising food prices may ignite inflation.

"It's well to remember, however, that retail food prices normally rise less than farm prices," he said. "This is because farm prices account for only one-fifth of the retail price of food, and even less for highly processed food like grains. Four-fifths of the retail price of food is determined by off-farm processing and distribution costs, and these are rising very modestly this year. In addition, meat and grain prices normally move counter to each other as rising grain prices increase the costs of livestock production and encourage early marketing of animals."

Uhl continues to predict a retail food price rise of 3 percent to 4 percent this year, with grocery store prices increasing faster than the cost of eating out.

"This is greater than last year's increase, but about equal to the expected overall rate of inflation," he said. "For the average family of four, this would increase the weekly grocery bill from $125 to $129."

The 1997 food price rise could be greater, Uhl said, if meat supplies continue to decline and grain stocks aren't replenished this fall.

ACS code/960117 Ag Uhl/9607a3

Source: Joe Uhl, (765) 494-4219; Internet,

Writer: Andrea McCann, (765) 494-8406; Internet,

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