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Grocery prices continue decline

New data released by the federal government shows consumers are paying less for groceries today than they were just six months ago. This decrease comes amid increased production and use of ethanol, often the scapegoat of choice by food manufactures and meat processors when grocery prices rise.

According to the Consumer Price Index (CPI) released today by the Bureau of Labor Statistics, prices for groceries (food consumed at home) declined for the sixth straight month, and prices for all the major grocery store individual food groups declined compared to April. The index for meats, poultry, fish, and eggs showed the largest one-month decrease at -0.9 percent. Prices for dairy products, fruits and vegetables, and beverages also showed noticeable declines.

“Against the backdrop of tremendously volatile energy and food markets over the past 36 months, the one constant that has remained is increased production and use of fuel ethanol,” said Renewable Fuels Association Vice President of Research Geoff Cooper. “Oil prices have spiked to historic levels and crashed dramatically. Food prices have spiked and fallen at a rate not seen since 1950. Yet, America’s ethanol producers continue to steadily increase our supply of domestic renewable fuel, which cuts oil imports and reduces greenhouse gas emissions. Given this consistency, it is clear that a host of unpredictable factors such as runaway oil and energy prices, exchange rates, changing diets, and weather events have had a far greater influence on food prices than American ethanol production.”

In addition, the CPI for May found:

  • Overall food prices (including food consumed both at home and away from home) decreased for the fourth consecutive month.

  • Prices for food and beverages have increased just 2.7 percent in the last 12 months, which is well below the 30-year average for annual food inflation and less than half of 2008’s oil-fueled food inflation rate of 5.5 percent. USDA projects 2009 grocery prices will increase just 2.5 to 3.5 percent compared to 2008.

  • Over the last 12 months, the overall Consumer Price Index has fallen 1.3 percent. This is the largest year-over-year decline since April 1950 and, according to the Bureau of Labor Statistics, is due mainly to a 27.3 percent decline in the energy index during that period. This underscores the fact that prices for all consumer goods, including food, are closely tied to energy prices.

  • The gasoline index increased 3.1 percent in May after declining 2.8 percent in April. A much larger increase is expected in June, as retail gasoline and diesel prices have jumped in the last month.

On a separate but related note, prices paid to U.S. agricultural producers for farm goods rose less than forecast in May, due largely to the drop in wholesale food prices. According to Bloomberg, the May Producer Price Index (PPI) showed the “biggest 12-month slump” in wholesale costs in a half century. Wholesale food costs dropped 1.6 percent in May compared to April.

All of this data comes as American ethanol producers are poised to produce a record amount of ethanol and distillers grains, a livestock feed coproduct, in 2009. Based on demand and operating capacity, the U.S. will produce and consume ~10.5 billion gallons of ethanol and more than 30 million tons of distillers grains, replacing a significant amount of corn used in livestock feed domestically and overseas.

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