Indiana News

Rising Gas Prices Mean Rising Food Prices

Analysts also say they could eventually stagnate economy, which could bring prices down

3/14/2012

With gas prices hovering near four dollars a gallon, some analysts say it's a matter of time before other prices start to go up, with the cost of food likely to go up first.

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"I wouldn't be surprised to see rising food prices by this summer," says Indiana State University economist Don Richards, who says gas prices are not the only factor. "The other thing that I think enters into food is a more direct effect of economic recovery. As economic recovery gains momentum, we should expect to see demand for all sorts of goods and services to go up, including food."

How much food prices rise remains to be seen. Andy Dietrick with the Indiana Farm Bureau says we just emerged from the fourth quarter of 2011 which saw most food prices fall. Dietrick doesn't expect those lower prices to last now that fuel prices are higher. "When you look at the entire food chain, from the farmers who are growing the food to the transporation to the processor to the retailing outlet, petroleum is used in every one of those steps."

From the farmer's perspective, rising gas prices are a double whammy because it costs them more to grow food, but they generally don't get additional money from the crops they sell. "While the farmer can't pass that on the person who is purchasing his crop or his product, he has make very sure to be very careful about his input costs there. Really, it just cuts into his bottom line," Dietrick says.

In addition to fuel costs, food prices may go up even more depending upon the weather during the growing season. "It may not be weather here. It may be weather across the globe that puts a crimp in a market or a shortage in a certain commodity," says Dietrick.

Ironically, the reason for the rise in the cost of food may also be the reason for an eventual drop in prices if high gas prices slow the economy. "Rising gas prices in particular are going to cut into household discretionary income," Richards says, "and it's going to be a drag on the recovery. So there is some concern there. The question is, can we do anything about it, and I think there the answer is no."

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