US food prices to post biggest rise since '90: USDA

Wed Aug 20, 2008 5:26pm EDT

WASHINGTON, Aug 20 (Reuters) - U.S. consumers should brace for the biggest increase in food prices in nearly 20 years in 2008 and even more pain next year due to surging meat and produce prices, the Agriculture Department said on Wednesday.

Food prices are forecast to rise by 5 percent to 6 percent this year, making it the largest annual increase since 1990. Just last month, USDA forecast food prices would climb between 4.5 and 5.5 percent in 2008.

"It's a little bit of a surprise how strong some of the numbers were in July," USDA economist Ephraim Leibtag, who prepared the forecast, said in an interview.

"We've been waiting for some moderation, but especially with some of the meat prices and how much has come through relatively recently (at the retail level) leads me to believe the overall number may be a little bit higher for the year," he added.

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Prices are expected to rise by 4 percent to 5 percent in 2009, lead by red meat and poultry. The forecast, if correct, would be the third straight year where food prices have surged at least 4 percent.

Short-term, the biggest factor contributing to higher food prices is most likely the federal corn E85 subsidy. This isn't a whopping realization as its been discussed often over the past year, but it's important to follow and understand what drives up prices both in the short-term and long-term. Globally corn is a vital food and the U.S. is the leading producer and exporter of the grain, so it doesn't take too much common sense to understand that when the U.S. starts throwing a large portion of that corn to ethanol it's going to drive up prices. E85 is a whole other topic that I've gotten into before so I won't go into it too much, but this is the basic overview. Essentially, the government feels it knows which energy sources are the best and most "environmentally friendly" when in fact E85 has been a failure both economically and environmentally.

The other main driver behind higher food prices, I absolutely believe, is monetary inflation. It's more of a long-term factor but a vital one nonetheless that very few people understand or even think about. It's pretty simple when you use a supply and demand perspective: if all of a sudden there are billions of new bills in the marketplace, of course the purchasing power of the dollar will increase. More dollars = less value (purchasing power, and higher prices are the consequence. My feeling is that the impacts of monetary inflation on food and energy prices (both of which are very much connected especially in the global economy) won't be ignorable if we continue down this path of reckless and unchecked money printing. Higher prices over the long run should be no surprise with a fiat monetary policy. Certainly there are other factors like a growing global economy, but an economy is not stable when it is built on the foundation of a fiat money system controlled by powerful central banks. Free market economics teaches this and just going back in history proves this point. The bottom line is that government intervention and centralized economies have been tried in all shapes and forms yet none of them have survived or been sustainable in the long run. Yikes...