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Despite Drought, Food Inflation Steady In September

Despite Drought, Food Inflation Steady In September

USDA economist suggests meat prices may be lowest now before drought repercussions hit

The Consumer Price Index for all food increased just 0.1% in from July to August, inching up 0.8% from last September, the USDA reported Thursday.

The USDA says the year-over-year increase in the food at home CPI has fallen each month in 2012, indicating the food price inflation has slowed, despite USDA estimates of forthcoming drought impacts.

"Food prices were completely flat from August to September," USDA economist Ricky Volpe said in a USDA interview. Volpe added that only if estimates continue to stay steady will the USDA fall short of its estimate that indicated higher 2013 prices due to drought.

Meat Estimates

USDA economist suggests meat prices may be as lowest now before drought repercussions hit

Though beef CPI is down 0.3% in September, it is 5.4% higher than last September, and expected to go higher. The USDA estimates a 5% increase starting in mid-December and moving into next year.

The small market flood, caused by drought conditions in the Plains is leading to a decrease in beef prices, but it won't last long. USDA Livestock Analyst Shayle Shagam suggested the drought sell-off will end and smaller animal inventories will take over.

"We are looking at production across all the major species declining during 2013 which will provide support for prices," Shagam said in a USDA interview.

Current choice beef prices are at about $4.94 a pound, but are expected to reach $5 soon, Shagam said.

"From the consumer's standpoint, they are looking at budgetary allocation ... how much can they afford for groceries vs. gas vs. rent, how much can they afford to put toward beef vs. alternative proteins such as pork or poultry," Shagam noted.

He said that given the generally weak economy, consumers are likely careful in how they are spending their money.

Volpe agreed, and said he expected prices to only go higher.

"It's not my job to tell consumers how to save money or how to spend their food dollars, but the bottom line is that beef and pork and almost as certainly for poultry, prices are as low now as they are going to get. There is very little question that in the near term, beef prices are going to turn around and start to shoot up in a very big way," Volpe said.

Even if the drought was to ease and producers prepared to expand herds before the start of 2013, Shagam added that it would likely be 2016 before consumers would begin to see lower prices again.

Eggs and dairy were up only slightly, with milk prices unchanged and cheese and ice cream CPI similar to last month. Butter is 3% higher for September, but 8.2% below last September.

Fresh fruits and vegetables moved up a bit in September, but that is projected to stop.

"We know that fruit and vegetable prices did kick up a little bit in the last month," Volpe said, "but that's not going to change the fact that we are still on track for serious deflation for fresh vegetables and fruit prices to be about flat on the year."

Canned and frozen fruits and vegetables, however, will be steady.

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