Americans will see rising food costs after producer prices rise

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(Bloomberg) — The cost of food for final demand rose the most in 10 months in March, pointing to rising grocery bills for Americans in the coming months, even as gasoline prices fall.

Wednesday’s producer price index report showed food costs rose 2.4% from a month earlier, the largest increase since May. The jump was driven by larger price increases for grains, vegetables, cooking oil and pork — suggesting that the closely watched consumer price index will soon reflect such progress.

From a year earlier, food prices rose a whopping 16.2%, the largest increase in annual records since 2010, PPI data shows.

“Some of the commodity-based food categories in the CPI tend to follow their PPI counterparts with a lag of a month or two, so we’re likely to see continued large increases in consumer-level food prices,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, in a note.

Economists and policymakers, including those at the White House, are particularly concerned about the impact of rising energy prices on American consumers. While gasoline prices have fallen over the past two weeks, the PPI report suggests food may become the bigger burden on households.

Read more: Yellen convenes global food crisis as costs rise

Consumer food prices – which rose in March at one of the fastest rates since 1990 – have been on the rise for months, partly due to transportation bottlenecks and other supply chain constraints caused by the pandemic. The war between Russia and Ukraine has pushed futures prices further amid concerns over the supply of grains and fertilizers.

According to Curt Covington, senior director of institutional credit at AgAmerica, an agricultural lending company, the increased costs do not appear to be easing anytime soon.

“Scarcity in many agricultural commodities sectors, be it the meat or grain sectors,” is driving the price hikes, Covington said, a problem expected to persist for the foreseeable future.

Read more: Surf-and-peat specials cut from US menus as a sign of price pain

That’s especially bad news for lower-income households who spend more of their income on necessities. Those in the lowest income quintile spend 18% of their income on food and energy, compared to 11% in the highest one-fifth group, according to Bloomberg Economics.

“The knock-on effects of the conflict between Russia and Ukraine, and possibly China’s lockdowns, did not fully flow through the supply chain by March and will add to the inflation momentum built up over the past two years,” Bill Adams, chief economist at Comerica (NYSE:) Bank, in a note.

©2022 Bloomberg LP



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