An appetizing forecast for grocery shopping this year
Grocery shoppers can still look forward to only modest increases in overall food costs this year, forecasters say. Despite recent poor weather in some key agricultural areas and the start of a new federal price support program for grain, retail food costs are expected to rise between 2.5 and 3.5 percent, compared with an increase of 3.1 percent for all of last year.
''In the near term we can expect retail food price increases to be very low, '' says Rodney C. Kite, manager of agricultural research at Merrill Lynch Economics. He expects food prices to rise between 2.5 and 3 percent this year.
''I am still comfortable'' with a forecast of a 3 to 3.5 percent increase in food costs this year, adds Jeffrey L. Miller, an agricultural economist at the Federal Reserve Bank of Chicago.
But even a rise in the 3 percent range represents a significant boost from recent reports of food prices. In February, the latest month for which data are available, the food component of the consumer price index did not budge. And for the six months ending in February, food prices were rising at a seasonally adjusted annual rate of only 1 percent.
''We do expect that the best news with regard to food prices is over, for a combination of factors,'' says John M. Urbanchuk, director of the International Agricultural Service at Wharton Econometric Forecasting Associates.
Expected price pressures on food go beyond bad weather in fruit and vegetable growing areas of California and Florida and the government's payment-in-kind (PIK) grain price support program, Mr. Urbanchuk notes. As the economy recovers, food distributors and retailers are likely to widen the margin between what they pay for goods and what they charge. And as consumers grow more confident about an economic recovery, they may buy more red meat, tightening up supplies and putting pressure on prices.
Supermarket prices will get their first jolt from the bad weather in fruit and vegetable growing areas in Florida and California. Until recently fruit and vegetable prices have helped keep food costs in check by falling 6.4 percent at a seasonally adjusted annual rate in the six months ending in February.
Sharp price increases for fruits and vegetables are not expected to be long-lasting. The impact of the government's payment-in-kind program will take longer to show up at the retail level, economists say. Under the PIK plan, farmers agree not to plant some of their farmland. In return, they receive as payment in kind amounts of the same crops which are in government storage.
In the short term, PIK may help food costs by boosting the supply of meat and thus tempering price pressure. Since they will not have to pay production costs on the grain they receive from the government, PIK will provide farmers with a relatively inexpensive form of feed.
If the low-cost grain prompts farmers to boost the rations of cattle and hogs , later in 1983 there could be ''a bulge in the supply of meat in the system, (since) there will be some heavily fed animals coming on then,'' notes Mr. Kite at Merrill Lynch.
The PIK-induced heavier feeding would come on top of increases in pork production after two years of production declines. The increases are being set off by 1982 wholesale pork prices, which were 25 percent above 1981 levels. Supplies of poultry are also expected to rise. So this year retail meat prices should rise less than the 4.8 percent climb they posted in '82, Mr. Miller predicts.
Grain prices are also expected to rise, however, as PIK reduces the large surplus supplies of grains overhanging the market. Rising feed costs could ''dissuade producers from expanding livestock (herds in 1984),'' Mr. Miller adds , thus helping fuel higher food costs in 1984. Wharton Econometrics expects 1984 food prices to climb 5.6 percent in 1984, vs. a 3.4 percent climb in 1983.
Food prices are expected to get an upward nudge this year as the economy recovers and consumers push up demand for meat. And, as the economy rebounds, food processors and retailers may try to push up profit margins.