USDA Might Trim 2012 Food Inflation Outlook

USDA Might Trim 2012 Food Inflation Outlook

U.S. Department of Agriculture economists are mulling whether to trim their 2012 food-price inflation outlook if only because U.S. retail food prices climbed more sharply in December than they had expected.

The USDA, which is the only federal agency to publish a food inflation forecast, is already predicting that retail food prices will climb more slowly in 2012 than they did in 2011, when a crop-price boom increased the cost of producing everything from meat and milk to cooking oil. The crop rally has faded since September as high prices cooled demand and fears of grain shortages eased.

The USDA, which is slated to release the monthly update of its food inflation outlook on Wednesday, currently sees retail food prices climbing between 2.5% and 3.5% in 2012 on an annual average basis.

The U.S. Bureau of Labor Statistics said Thursday that its Consumer Price Index for all food climbed by an annual average of 3.7% in 2011. About 57% of the products in the BLS all-food price index are groceries while the remaining 43% are eaten by consumers away from home. Fierce competition in the restaurant industry, which is struggling to attract customers bruised by the sluggish economy, helped to limit the price rise in the food-away-from-home category to 2.3% on an annual average basis.

According to the BLS survey, retail grocery prices rose 4.8% in 2011 on an average annual basis compared to 2010. That’s a sharper increase than expected by USDA economists, who had been figuring that grocery prices rose between 4.25% and 4.75% in 2011 on an average annual basis.

Even though higher-than-expected grocery prices in 2011 is bad news for consumers, the BLS report signals to the USDA that some of the inflationary pressure it had expected to see this year was probably vented in late 2011. The survey released Thursday by BLS found that grocery prices in December were 6% higher than in December 2010.

“This might cause us to tweak our numbers a little bit,” said Richard Volpe, a research economist at the USDA in Washington, D.C. “Barring any shocks to the food system, we do expect to see a return to relatively normal levels of food inflation in 2012.”