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USDA economists up dairy retail inflation forecast

By Guy Montague-Jones , 29-Oct-2010

New forecasts published by the United States Department of Agriculture (USDA) suggest that dairy retail prices in the US could jump by more than 5 per cent in 2011.

Earlier this week, the Economic Research Service (ERS) at the USDA published its monthly update on food pricing trends ‘the CPI for food forecasts’, upping for 2011 only the prediction for dairy prices.

Higher forecast

The ERS now expects an increase in the retail prices of dairy products in the region of 4.5 to 5.5 per cent. Previously it had forecast 3.5 to 4.5 percent price inflation.

This is by far the largest price increase that the ERS is predicting for next year. The consumer price index (CPI) for all food products is forecast to be between 2 and 3 per cent.

Explaining the new dairy forecast, Ephraim Leibtag, senior economist at the ERS, said: “The 2011 forecast for retail dairy prices was increased due to an updated outlook on farm milk prices that shows they will be rising over the next few months and should put some price pressure on retail dairy prices (primarily milk and cheese).”

The ERS is expecting dairy prices to rebound from the slump that occurred in 2009. It said prices in 2009 fell 6.4 per cent compared to the previous year in what was the largest annual decrease since 1949.

As farm milk prices recover from the 2009 crisis, a 1.5 to 2.5 per cent increase in prices is expected in 2010.

Recent movements

Looking at the data for September, the ERS said dairy prices rose 0.2 per cent on the previous month and are 2.9 per cent above the prices of a year ago.

Within dairy, the biggest upward strides have been made in milk and butter prices. Last month milk prices stood 6.5 per cent above prices in September 2009 and butter prices were up 19.1 per cent.

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