Saturday, December 29, 2007

Rising Food Prices

I read on the plane an article in the Economist about "Food Prices - Cheap No More". Interestingly food prices had previously until this year been on the decline. The peak grocery prices hit actually in 1974.

And even now we've yet to reach those prices again. Yet prices this year have been trending up. Due to a couple of different reasons, the use of ethanol to fuel cars and increased meat consumption.

This supposed increase in food prices will most affect poorer countries. But I question if they aren't underestimating the impact on Americans? With the slowing economy, many people's incomes are not rising as quickly as the goods they need to purchase.

Hence the prolonged period of cheap groceries has allowed consumers to spend a smaller percentage each year than if the cost had increased since 1974. This might have also caused them to become used to cheaper prices for years, and now suddenly having to increase the grocery budget is an eye opener.

Where will the extra money come from? How will people deal with groceries rising in costs annually instead of decreasing? Do you really think Americans can handle the jump? Much like how Americans are spoiled with cheap gas, in Europe and Asia, gas can cost $5-7/Liter. Hence we've allowed ourselves to continue affording large SUV/cars.

So will this rise in groceries cause us to curb our spending in other areas or will we just borrow more money to solve the problem?


frugal zeitgeist said...

Good question, and I'd like to know the answer as well. I already eat on the cheap, but I'm trying to find ways to do it even cheaper. I'll compromise on anything but savings and mortgage payments.

JW said...

This is of special concern to us because, we desperately need to reduce our grocery budget. A sudden rise in groceries could be catastrophic for many.

Living Almost Large said...

I am already planning on increasing our gas budget next year and grocery budget. I upped both last year as well. Unfortunately, I don't think that shopping frugally or stopping driving is a good idea.

Public transit passes increased an extra 40% last year because of the rising gas prices. Specifically they said they need to increase rates. So savings were not as much as people might hope for using public transit.