- The Washington Times - Tuesday, November 22, 2005

CHICAGO - Stocking the fridge and pantry for a big feast at Thanksgiving is never cheap. But consumers who were braced for steeper costs because of the recent spike in energy prices can relax a little when they head to the supermarket before the holiday.

Thanks to stiff retail competition that keeps stores from risking big markups, prices for most food items are only nominally higher than they were a year ago, according to government data and survey results released last week.

Even shoppers with full carts weren’t grumbling in a spot check at a Chicago supermarket, finding that prices hadn’t shot up as was feared in the aftermath of hurricanes that wreaked havoc with transportation costs.

“I would say things are up a little bit, but not much,” said Paul Stancy, who was loading up on food and beverages last week at the store on the city’s northwest side.

That sentiment jibed with monthly statistics reported by the U.S. Labor Department showing that food costs edged up 0.3 percent in October, a slight acceleration.



“I think we’re seeing higher food prices than we would have absent the increases in energy costs,” said Ephraim Leibtag, food price analyst for the U.S. Department of Agriculture. “But we haven’t seen anything go off the charts price-wise.”

Food price inflation has been relatively low in 2005, he added, with costs estimated to increase about 3 percent over last year.

That’s exactly how much more a traditional Thanksgiving dinner with all the fixings is likely to cost a shopper this year compared with last year, according to the American Farm Bureau Federation. Based on results of informal price checks conducted by 108 volunteer shoppers in 30 states, the average cost of this year’s feast for 10 is $36.78, up $1.10 from 2004.

Milk, pumpkin pie mix, frozen vegetables, stuffing and rolls were higher in prices while sweet potatoes and fresh cranberries were among items that were lower, the result of more-abundant crops this year.

The slight overall increase largely can be attributed to higher energy prices, which affect processing, packaging, refrigeration and shipping costs, said Terry Francl, a senior economist at the federation.

Kraft Foods Inc., the biggest U.S. food manufacturer, gave a similar explanation earlier this month in boosting prices for its crackers, pizza, lunch meats and some other items an average 3.9 percent. The entire packaged-food industry has been hammered by the price of oil, which has affected plastic-packaging expenses and the cost of energy involved in operating plants and transporting goods.

So why aren’t shoppers facing sharply higher prices across the board?

It’s the same reason why the biggest U.S. airlines continue to offer bargain fares even while losing money: Customers will vote with their feet otherwise.

“Food manufacturers have tried raising prices, but every time they do, they lose market share,” said Bob Goldin, an analyst at the Chicago-based food consultancy Technomic Inc. “It’s intensely competitive out there.”

General Mills Inc. and Campbell Soup Co. lost sales by putting through price increases that their competitors didn’t follow.

Supermarkets, then, are understandably leery about imposing price rises beyond the ones dictated by manufacturers.

“Grocery store owners know energy prices have risen a lot, so if they raise their prices as well they’re likely to see reduced sales,” said Corinne Alexander, an agricultural economist at Purdue University.

“It doesn’t make sense for a retailer to raise prices in response to a short-term energy spike.”

Another reason why the effect on food prices hasn’t been dramatic despite Katrina and other hurricanes is that wholesale beef and dairy prices have dropped from last year’s record highs, giving retailers a cushion to absorb some of the greater energy-related costs, she said.

This doesn’t mean grocery bills are immune from higher energy costs indefinitely. Analysts say creeping increases in food prices are likely to show up more and more if oil prices don’t keep dropping.

“Consumers so far have not had to pay up too much,” said Diane Swonk, chief economist at Mesirow Financial, a Chicago financial services firm.

“But we are starting to see some of the increased transportation costs seep into food costs, and that will be somewhat apparent this holiday season.”

Also, although the cost of Thanksgiving dinner may be going up only marginally, getting there will be much more expensive — gasoline prices are up roughly 50 percent from a year ago.

Ms. Swonk joked that strong consumer spending on alcohol might be linked to that.

“Apparently once they fill up their tanks they need a wine or beer to calm themselves down again,” she said.

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