August 28, 2009

After two years of above-average food price inflation, the rate is expected to return to more normal rates next year.

Corinne Alexander, an agricultural economist at Purdue University, expects 2010 food prices to increase between 2.5 percent and 3.5 percent, well under the record 5.5 percent that was set in 2008. The 10-year average for food-price inflation, from 1997 to 2006, is about 2.5 percent, she said in a release.

"One reason we're not seeing prices go up so much right now is we had a massive recession that caused people to cut back," Alexander said. In July of this year, the cost of food purchased for the home decreased 0.9 percent from the same month last year, much lower than usual and lower than the September, 2008 peak of 7.6 percent.

Food purchased away from home, such as in restaurants, increased 3.2 percent this past July from the same month last year. That was about average, and lower than the December 2008 high of 5 percent.

Several factors have been driving the decline in those inflationary numbers, Alexander said. Significantly lower commodity prices, as well as the lower cost of fuel, have been major contributors.

"Grain prices peaked last summer. We had US$8 corn. We had US$13 wheat," Alexander said. "We also had US$147 per barrel oil."

The recession also slowed growth in developing countries, reducing the demand for meat and other food exports. That has increased the supply available in the United States, driving down the price.

"You just can't have rising meat prices with domestic supplies so high," Alexander said. "This year domestic demand weakened because of the recession." She warned, however, that inflation could go higher based on the economy. "If the US and world economies start growing and the recession is finished sooner than expected, that will boost inflation."