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Archive for Monday, September 17, 2007

Wheat takes bigger bite of food budgets

September 17, 2007

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First it was corn. Now wheat is getting the blame.

Earlier this year, corn began getting pricey because it was in high demand to make ethanol. That sent prices rising for other corn-dependent products, including milk and meat. Now wheat is costing more and more because of poor harvests and greater global demand, sending grocery bills still higher.

The price of wheat futures reached a record $9 a bushel on the Chicago Board of Trade on Wednesday. And the higher food prices that have resulted from the increase - items like baguettes, rigatoni and cupcakes cost more - come at a time when consumers are already feeling strained by energy prices and mortgage debt.

Although wheat doesn't touch as many foods as corn, which is used in products as varied as livestock feed and high-fructose corn syrup, its price directly affects staples such as cereal and bread.

The Bureau of Labor Statistics reported that food prices increased 4.2 percent in the 12 months ended in July. That compares with a rise of 2.2 percent in 2006. The consumer price index for food, which includes groceries and dining out, is forecast to increase 3.5 percent to 4.5 percent this year, according to the Agriculture Department.

Not all food prices are going up fast. Bananas and tomatoes went up only slightly in July from last year. Yet the fluctuations within one shopping basket can be enormous. Egg prices are expected to soar 20 percent this year, but pork only 1 percent to 2 percent, according to forecasts by the USDA.

Although food makes up only about 13 percent of total household spending, higher food costs worry economists who say that for every extra dollar spent on groceries, a dollar less will be spent on discretionary items like clothes and entertainment - purchases that fuel overall economic growth. And at a time of uncertainty over the housing market, stock market and jobs, consumers are more acutely aware of such price increases, they say.

"The U.S. consumer buys 70 percent of production of the economy, so when they stop buying, it's a real problem," said Charles W. McMillion, president and chief economist of MBG Information Services.

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