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The New Economy

A small break in food prices

By / March 18, 2009

For consumers like Winnie Hall in Edmond, Okla., prices at the grocery store have fallen slightly.

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After an unbroken string of 33 monthly increases, food prices finally moderated slightly in February. They fell 0.1 percent.

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Will the price of eating keep falling? Maybe a little.

"For the next few months, we'll have flat to falling prices at retail," says Ephraim Leibtag, a senior economist at the US Department of Agriculture (USDA). "How far they fall depends on what happens to the economy."

Once the economy recovers, the dip will disappear.

Lower grocery prices

While the cost of food overall fell slightly from January's record, grocery prices fell 0.4 percent, the Bureau of Labor Statistics reported Wednesday. All the major food groups except fruits and vegetables dropped. Milk declined a dramatic 5.7 percent, capping a 10.0 percent decline over the past year.

That's welcome news for grocery shoppers, who saw the overall consumer price index (CPI) rise 0.5 percent in February, mostly due to a big rise in gasoline prices.

Food outpaces inflation

But the small drop in overall food prices is a blip compared with their dramatic run-up in the past 2-1/2 years. Since April 2006, those prices have risen 13.0 percent – more than double the overall nonfood inflation rate of 5.1 percent during the same period, as measured by the CPI.

When the economy recovers, USDA projects that food prices will continue to outpace inflation through 2011. Besides high energy costs, the rising cost of grains and soybeans, used in many processed foods, were the main culprit for high food prices in 2008. The future increase is expected to come in part because of rising meat prices.

"The cost pressures of the past few years have not fully dissipated," Mr. Leibtag says. "Commodity and energy prices are still pretty high."

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