From Deseret News archives:
Food inflation: Commodities slump won't mean lower grocery prices
Food inflation is here to stay and will probably get worse for some things.
That's because retail prices for cereal, eggs, cheese and meat generally lag by several months or longer world prices for wheat, corn and soybeans the raw ingredients of so much of our food. Some food items may come down modestly as commodities prices cool off; others might not budge a cent and some may actually increase.
"Food prices tend to go up pretty quickly, and they tend to stick on the way down," said Jim Sartwelle, an economist with the American Farm Bureau, which tracks retail food prices on a quarterly basis.
That's bad news for Americans still struggling with high costs for fuel and household goods, and worse for people in impoverished countries like Haiti and Senegal, where violent food riots broke out earlier this year as world food prices peaked.
Food manufacturers have dealt with the higher input costs in a variety of ways, from raising retail prices to shrinking boxes of cereal and bags of potato chips so they can sell less product for the same price.
But while easing prices for crude and other commodities has allowed retail gas prices to come down almost 10 percent from July highs, food prices have been more stubborn.
The economics of the food business are partly to blame. Though crude oil is the main ingredient of gasoline, processed foods like cereal, crackers or cookies use only a small amount of corn, wheat and other grains, limiting manufacturers' pricing power.
"Basically, there's only a few cents worth of corn in a box of corn flakes, so food prices are much slower to react to the downside than energy prices, " said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago.
Another factor keeping food prices high: Though commodities prices have fallen from record levels, they're still well above historical levels. Corn and soybeans have dropped 24 percent and 17 percent, respectively, in the last two months but are still about double where they were two years ago.
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