Food price inflation remains low this year, to rise in 2011, says USDA

27-Oct-2010 - Last updated on 28-Oct-2010 at 09:32 GMT

Related tags Consumer price index Inflation

The US Department of Agriculture (USDA) has reiterated its late-August prediction that food price inflation will be at its lowest since 1992 this year – but higher commodity costs are likely to increase prices in 2011.

The USDA said in its monthly report on Monday that it expects food prices to rise 0.5 to 1.5 percent during 2010 – the lowest consumer price index rise in 18 years.

However, the emerging picture of future food prices in the United States is mixed. Last week, several major food manufacturers announced their intention to raise prices on the back of stronger commodity costs. And the impact of those increases is likely to be more evident in the consumer price index next year.

“Although inflation has been relatively weak for most of 2009 and 2010, higher food commodity and energy prices are now exerting pressure on wholesale and retail food prices,” the USDA said in its monthly report. “Hence, food inflation is predicted to accelerate during the final months of 2010 and the first half of 2011, leading to a forecast of 2 to 3 percent food price inflation in 2011.”

Food company plans

Among companies that have announced plans to raise prices are giants like General Mills, Kraft and Hershey. General Mills said last week that it would raise prices for about a quarter of its cereal production on November 15, by what it said would amount to a “low single-digit” percentage; Kraft has also announced its intention to increase prices to offset higher commodity costs; and Hershey’s saw its share price fall by three percent last week after it lowered its 2011 earnings expectations, also saying it expects to see higher ingredient costs next year.

Meanwhile, the world’s largest bakery supplier, Netherlands-based CSM NV, said it will lift prices to counteract increased raw ingredient costs.

Return to positive growth

For food overall, inflation levels of two to three percent next year would be more than double those seen in 2010, but some foods are more strongly affected than others.

Year-on-year, beef prices in September were up 5.7 percent, pork was up ten percent and eggs were up 11.3 percent.

However, it is important to note that the United States is only just emerging from a period of exceptionally low food prices, with the consumer price index having only recently returned to positive growth. The food consumer price index saw six consecutive months of annual declines in food prices from September 2009 to February 2010 – a first since 1959, according to the USDA.