Consumer food prices are rising modestly this year and are expected to rise more next year. But government and private analysts differ on how much the increase will be.
The latest forecast by the Department of Agriculture is that the Consumer Price Index, or CPI, for food in 1997 will rise 3 percent to 4 percent, slightly higher than the 2.8 percent to 3 percent expected for 1996. The at-home component of the food CPI is forecast to post an increase of 2 percent to 3 percent in 1997, with the away-from-home component up 3 percent to 4 percent.
"The combination of the minimum wage increase and increases in some food prices at the farm level is expected to boost the away-from-home CPI in 1997," says the USDA in the October issue of its Agricultural Outlook magazine.
The USDA acknowledges its forecasts are below those offered by some private analysts who see food price increases of 4 percent to 5 percent this year and 4 percent to 8 percent in 1997.
"USDA uses a bottom-up approach, starting with production forecasts for basic commodities as inputs into analysis to forecast year-ahead prices," says economist Annette Clauson. "After forecasts are made for each food category, they are aggregated to the all-food, food-at-home, and food-away-from-home totals using Bureau of Labor Statistics weighting factors.
"With this method, USDA's forecasts for 1996 food CPI have varied little since the first forecast was released last December," she said.
In general, economic conditions influencing the food CPI have not changed dramatically, Clauson points out. Inflationary pressures, as measured by changes in the all-items CPI, have remained stable and are forecast to be 3 percent to 3.1 percent in 1997 and 3.1 percent to 3.2 percent in 1996.
"This means that costs related to food production and marketing--e.g. labor, packaging, transportation and advertising--that account for about 90 percent of the retail price of highly processed foods, are not expected to increase substantially.
"Second, the farm value proportion of the U.S. food dollar, which has generally been on a declining trend and which stood at 22 cents in 1995, is expected to remain about the same in 1996 and 1997. With a smaller farm value proportion currently--compared with 37 cents in 1973--retail food prices are determined less by farm commodity prices and more by market conditions for labor, packaging and advertising, as well as by competition among firms and changes in inflation.
"Third, the trend of increasing economies of size in the agriculture sector, which have led to slower rising per-unit production costs, is expected to continue."
Clauson says the latest forecasts may be revised if unexpected changes occur in the non-farm markets, especially labor; if the feed-grain crop outlook changes; and if weather-related production changes occur in the fresh fruit and vegetable growing areas.