U.S. food price rise to be largest in 18 years: USDA

By Charles Abbott

WASHINGTON (Reuters) - U.S. food prices will rise by 5 percent this year, the largest increase since 1990 and propelled by sharply higher prices for bread, cookies and other bakery products, the Agriculture Department said on Monday.

It would be the second year in a row of high food-price inflation, with another year or two of large increases expected. Until 2007, food prices tended to rise more slowly than the overall U.S. inflation rate.

"This year, we expect food prices to increase about 5 percent," Joe Glauber, USDA chief economist, told reporters. At the start of the year, USDA foresaw a 3.5 percent rise.

Prices of cereals and bakery products are forecast to zoom by 8 percent this year, up 2 percentage points from USDA's initial forecast.

"That's what happens when wheat prices double in six months," said Ephraim Leibtag, the USDA economist who tracks food prices.

Sharp increases are forecast for eggs and for fats and oils this year. Cereals and bakery goods account for a larger share of food spending than do eggs and fats and oils.

Americans spend more than $1 trillion a year on groceries, snacks, carry-out food and meals at restaurants. Farmers receive 20 cents of the food dollar, which dilutes the impact of record-high crop prices. The rest goes to processing, labor, transportation and distribution.

Meat, poultry and fish prices, forecast for minor increases this year, will be a leading reason for higher food prices in 2009, said Leibtag, because high feed prices will limit meat production.