Food Prices Take A Bigger Bite Out of U.S. Budgets
Wednesday, May 14, 2008SUSIE GHARIB: Food prices registered their biggest gains in nearly two decades last month, while overall consumer inflation was far more well-behaved. The government reported today that the consumer price index, which measures retail inflation, gained 0.2 of 1 percent in April, after a 0.3 of a percent gain in March. So-called core prices, which exclude food and energy costs, inched up only 0.1 of 1 percent in April. As Suzanne Pratt reports, economists believe inflation pressures are likely to continue.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: At D'Agostino's supermarket in New York City, higher food prices are a new reality. The grocery chain says escalating transportation costs are leading to price increases for many everyday items. On top of that, increasing global demand means higher produce prices, while sharply higher commodity costs have resulted in higher price tags for wheat-based products. D'Agostino President Nicholas D'Agostino says the store is passing some of those costs on to customers and some it's absorbing.
NICHOLAS D'AGOSTINO, PRES. & COO, D'AGOSTINO SUPERMARKETS: It's a combination, especially because we have competition. So, as much as we'd like to just always pass it along, it depends on what our competition does and it depends on how their model works. But, yes, it eventually is going to get passed to the consumer, that's where it going to end up.
PRATT: The government's April report on retail inflation shows food prices nationwide jumped 0.9 of 1 percent, the most since January 1990. Rising costs for fruit and pork were major contributors. But declining costs for furniture and hotel stays last month outweighed those higher food prices and led to only a small up-tick in the overall consumer price index. PNC economist Stuart Hoffman says headline inflation seems tame, partly because companies are holding down prices to attract business as the economy slows.
STUART HOFFMAN, CHIEF ECONOMIST, THE PNC FINANCIAL SERVICES GROUP: Other than airfares, there's been very little pass-through into overall inflation. I think some of that has to do with wages still are pretty much under control and workers are being more productive. So what you don't have is sort of that wage-price spiral that you worry most about.
PRATT: Still, inflation in the last 12 months is running at a rate of just under 4 percent, while the core rate is up 2.3 percent. Economist Kevin Logan says the Federal Reserve is not happy with those levels.
KEVIN LOGAN, SR. MARKET ECONOMIST, DRESDNER KLEINWORT: It's very unlikely, in my view, that the Federal Reserve will ease monetary policy any further this year. Of course, it's already very easy, with only a 2 percent Fed funds rate. But they will probably hold it there for the rest of this year and see how it plays out and whether inflation continues to accelerate or not.
PRATT: Food prices are expected to accelerate in the coming months. The government is forecasting nearly a 5 percent jump in prices this year. That's double the annual rate for food inflation in the past 15 years. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
SUSIE GHARIB: The cost of food was very much on the minds of members of Congress today. Late this afternoon, the House of Representatives passed a massive farm bill with a large enough margin to overcome a promised presidential veto. The administration had argued that more aid was not needed when farm incomes are at record levels. But as Darren Gersh reports, members of Congress say farm communities still need a safety net.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sensitive to the perception that they are giving billions to farmers when crop prices are at record highs, members of Congress tried to put the massive farm bill in perspective. Virginia Representative Bob Goodlatte said most of the $307 billion bill goes to expand food stamps and funding for food banks and school lunch programs.
REP. BOB GOODLATTE (R) VIRGINIA: The truth is that only 17 percent of the farm bill spending is devoted to farm programs, while nearly 70 percent goes to the nutrition title alone. In fact, there is very little farm in a farm bill anymore.
GERSH: Still, the bill does extend $35 billion in farm subsidies, giving cash payments to farm families with incomes of up to $1.5 million. Critics like minority leader John Boehner said the current bill could have done more to cut taxpayer costs.
REP. JOHN BOEHNER, MINORITY LEADER: At a time when we've got the highest commodity prices that we've seen in a generation, you would think that we would take a slightly different approach to the farm bill.
GERSH: Congress did signal some changes in direction, responding to concerns ethanol production is driving up food and feed prices. The bill reduces the corn-based ethanol tax credit by $0.06 to $0.45 a gallon. The tax credit for so-called cellulosic ethanol, which is made from agricultural waste, is increased by $0.51 to $1.01 per gallon. The bill also takes aim at energy speculation, bringing trading that is now unregulated back under the eye of Federal watchdogs. As a lawyer at the Commodity Futures Trading Commission, Michael Greenberger helped police energy markets. He says members of Congress are responding to concerns from farmers and other industries that energy trading is out of control.
MICHAEL GREENBERGER, PROFESSOR, UNIVERSITY OF MARYLAND SCHOOL OF LAW: The whole impetus of the farm bill amendment affecting energy futures trading is premised on a thesis that we are paying much more for our energy products than supply and demand would dictate.
GERSH: The Bush administration disagrees. At a recent hearing on the matter, regulators said they had found little evidence that speculation in oil and other commodities like corn was overriding the laws of supply and demand. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
