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Price of dinner foods up almost 5% in one year

7/25/2011 21:16:28 PM

The "Food at Home" component of the recent consumer prices report surged almost 5% on an annual basis as grocers passed on to consumers the 12-month jump in corn, rice, sugar and oats.



The measure, defined by the Bureau of Labor Statistics as "total expenditures for food at grocery stores," rose 4.8% during the 12 months ending in June. That's up from a 4.4% annual increase from May's report. Plus, not counting the temporary spike in inflation during the aftermath of the credit crisis, this is the biggest price increase by grocers since 2004.

Prices for corn, rice, and sugar are up more than 60% in the last 12 months. Part of this is because of growing demand in emerging markets, but many investors also say the Federal Reserve's decision to keep interest rates essentially negative for so long is largely to blame for the price spike.

The headline figure in the report showed consumer prices dropped 0.2% from May to June. This was mostly due to a pullback in gasoline prices. On an annual basis, overall prices still increased 3.6%.

"In our latest pricing surveys across discounters and supermarkets, we have seen a sharp increase in prices across channels," said Stephen Grambling, Goldman Sachs retail analyst, in a note. Because of rising agriculture prices, "we remain concerned that food inflation could move beyond 5% year-over-year in the back-half, which may spark a more promotional environment and pressure margins."

Shares of Kroger and Safeway are up 22% and 6% respectively this year as the supermarkets have been successful in passing through the rising costs to consumers. That may not last, analysts said.

"We are more cautious longer-term as consumers may be unwilling to accept further increases," said Grambling.

The analyst, however, did reiterate his "conviction buy" rating of Whole Foods, adding, "We view their consumer as best positioned to absorb higher prices in a slow growth environment."

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SRC: http://www.usatoday.com/money/industries/food/2011-07-23-cnbc-dinner-table-inflation_n.htm


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