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Donuts to dollars: playing the food inflation blame game

Every six months or so, as I drive along the main drag pre-dawn, the siren call of dough deep-fried in artery-clogging fats and coated with sugar reaches out to ensnare me, and ever so guiltily I wheel in for a couple of glazed donuts.

For the longest time, the tab was one buck — 50 cents each. Today, it was $1.20, a 20 percent increase (there was not, alas, a corresponding increase in the size of the donuts).

Now granted, a 20-cent boost in the price of two donuts spread over the six months between cravings ain't a budget-buster.

But while I was conditioned to automatically forking over a dollar bill for my biannual lapse into sinfulness, in a transaction that was neat and even, now I'll have to cough up another 20 cents … and that just may be the added psychological restraint that keeps me on the wagon.

I'm sure the donut seller could cite the huge increase in the cost of flour and other inputs as justification for the price hike, a microcosmic representation of what the U.S. food consumer has been confronted with at every turn for the past couple of years — price escalation seemingly of a magnitude equivalent to the oil/energy sector.

Everything from Oreos to chicken to broccoli to bacon either saw significant price increases or less product in the package (i.e., 12 ounces of bacon as a “pound”) or both.

Food prices at the nation's grocery stores rose by a whopping 6.6 percent in 2008, according to the Department of Labor (baked goods and cereals led the list, up 11.7 percent). It was the largest increase in nearly 30 years, coming on top of a 5.6 percent increase in 2007. By contrast, the 2006 increase was 1.4 percent.

Big Food was quick to attribute the increase to higher energy costs in all the steps along the pipeline from farm to supermarket shelf; record or near-record prices for corn, wheat, rice, and soybeans; and the government-mandated increase in ethanol production and usage.

But while they were spending millions on PR and lobbying campaigns in an attempt to portray ethanol and higher crop prices as villains, they were racking up quarterly profit increases of 37 percent, 61 percent, 72 percent, etc.

The CEO of one major food company noted that “in 2008, we made progress in several important areas, most notably pricing.” Another reported that higher retail food prices “have so far helped keep (our) profits safe from the higher costs” of commodities/inputs.

So, though their costs were indeed increasing, they were able not only to insulate themselves by raising the prices for their products, they were able to rack up substantial profits in the process.

Interestingly, while oil prices have fallen precipitously in the wake of the global financial meltdown, and major commodity prices are significantly below year-ago levels, supermarket food prices have not declined.

Some industry analysts expect food sector inflation to ease somewhat this year — but that won't do anything to offset the ongoing impact of the 12.2 percent increase consumers have been hit with the past two years.

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