Food Prices Expected to Keep Going Up

For more than a year, food manufacturers have been shaving package sizes and raising prices, declaring that they had little choice because of unprecedented increases in the cost of raw ingredients like corn, soybeans and wheat.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

Some economists project even steeper increases next year. For instance, Bill Lapp, principal at Advanced Economic Solutions in Omaha, said he expected food prices to jump 7 to 9 percent next year.

"For the last 21 months, food manufacturers, restaurants and livestock producers have been absorbing significant costs that in my view are likely to be passed on to consumers in 2009 and beyond," said Mr. Lapp, a former chief economist at ConAgra Foods.

While predicting future food prices is an inexact science, data released by the Labor Department last week suggested the forecasters might be right.

Overall consumer prices recorded the biggest drop in the history of the Consumer Price Index, but food prices continued to inch upward, albeit at a slower pace than in previous months. The C.P.I. showed that grocery prices rose 0.1 percent in October.

Some of the more visible items on grocery shelves, including produce and dairy products, dropped sharply in recent weeks, but not enough to offset the general trend of rising prices. Restaurant prices rose 0.5 percent in October.

Commodity prices began climbing rapidly in the fall of 2007, and food companies were hit hard by the increases. They tried to slow eroding profit margins by cutting operating costs, making packages smaller and raising prices.

Click here to read the whole article by ANDREW MARTIN in the New York Times November 27, 2008 issue.