Food Costs Jump Most in 18 Years

By Howard Schneider
Washington Post Staff Writer
Thursday, May 15, 2008

Rising global grain prices helped spark the largest increase in monthly food costs in nearly 20 years, as consumers paid more in April for cereals and baked goods, and the dairy, meat and other animal products that rely on feedstocks, the government reported yesterday.

Food prices have risen at a seasonally adjusted annual rate of 6.1 percent past three months. The 0.9 percent rise from March to April was the biggest one-month advance since January 1990, according to the Bureau of Labor Statistics.

The rise in prices covered all categories of food but was most severe among such staples as grains and oils -- goods where inflation has touched off food riots in some less developed countries and led to concerns about shortages.

The costs of cereal and bakery products increased 1.4 percent from March to April and have risen at a seasonally adjusted annual rate of nearly 20 percent in the past three months. Prices for fats and oils jumped more than 5 percent in April, on a seasonally adjusted annual basis, and have increased more than 26 percent in the past three months. Prices for sugars and sweets increased more than 10 percent during that same period.

The jump in food prices, along with a steady rise in the cost of gasoline, clouded an inflation report that otherwise contained good news for policymakers.

Overall inflation remained tame in April, increasing by a less-than-expected 0.2 percent. Excluding food and energy prices, so-called core inflation increased just 0.1 percent, or about 2.3 percent on an annualized basis.

The Federal Reserve and other economic policymakers watch inflation closely, and the monthly data on price increases has taken on added importance following a recent round of interest rate reductions. The Fed has slashed rates to try to stimulate investment and spending and stave off a possible recession, but some members remain concerned that any extra spending could fuel inflation.

Although the overall report was "a pleasant surprise," as one analyst said, the persistent increase in food and energy prices has taken a toll on consumer attitudes and pocketbooks -- a concern because consumer spending accounts for about two-thirds of economic activity. The Bureau of Labor Statistics, for example, also reported yesterday that average inflation-adjusted weekly earnings fell 0.5 percent in April, as a slight rise in wages was offset by price increases and a drop in the number of hours worked.

Along with food, rising gas prices have caused concern that consumers will have to shift their dollars toward staples and spend less elsewhere.

Although energy prices in April were flat overall, that was in part due to the Bureau of Labor Statistics' practice of adjusting data to account for seasonal fluctuations. In this case, gas prices usually rise this time of year, and recent increases in prices at the pump were in line with what was expected, a Bureau of Labor Statistics spokesman said.

Excluding the seasonal adjustment, gas prices rose about 4.2 percent over the month.

The April inflation report, taken as a whole, "will help alleviate some of the Fed's concerns over an uncertain inflation outlook," Kenneth Beauchemin, an analyst with the Global Insight consulting firm, said in an e-mail. "Nevertheless, plenty of risk remains," as rising energy prices also force food prices higher, requiring consumers to spend more on basic goods, Beauchemin wrote. "To what extent, and when, the energy price onslaught embeds itself into core consumer prices, is an open question."

Crude oil is trading around $125 a barrel, an issue expected to be discussed when President Bush meets Saudi King Abdullah this week.

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