Business: Food Prices Take Off Again

The summer drought leaves grocery bills soaring and consumers moaning

Last spring, when the Consumer Price Index was leaping from peak to peak like a bee-stung mountain goat, economists, among others, looked to food prices for a little consolation. People at check-out counters may find it hard to believe, but the cost of food was then going up more slowly than the Consumer Price Index. In the first half of the year, when inflation briefly topped 18%, food prices grew at an annual rate of only 7%.

It was too good to last, and it did not. In July the tab at the supermarket checkout counter rose 1.6%, and wholesale food prices in August shot up 4.4%, the highest monthly jump in seven years. Moreover, prices are expected to keep right on going up for at least the next six months. Says Rodney Kite, director of agricultural forecasting at Evans Economics in Washington: "Food will be in the forefront of inflation the rest of this year. By December a pound of hamburger or chicken will cost 15% more than it did in June. Pork chops will be 20% higher." Otto Eckstein, president of Data Resources Inc., an economic-forecasting firm, says that by next spring prices of farm products will be up 24% from last spring.

The explosion in food prices is caused primarily by the summer's drought in the South and parts of the Midwest. In many sections of the country, the average temperatures ranged six to eight degrees above normal, and rainfall was less than half the usual amount. Says Agriculture Department Economist J. Dawson Ahalt: "If you're a farmer in Arkansas or eastern Nebraska, this drought has knocked hell out of you, really cut your yields by half in some instances."

This year's autumn corn harvest is down 16% from 1979's large crop, and the lower yield has already pushed prices above the $3-per-bu. level, vs. $2.45 for the same period last year. Ranchers, also suffering from the drought and fearing a hike in the price of their prime feedstuff, sent more of their cattle to slaughter earlier in the summer in order to save on feeding them. Initially, this depressed beef prices, but the long-term effect will be to deplete the herds, reduce supply and make meat more expensive later. The production of soybeans, another animal fodder, is off 19% this year, although prices paid to the farmer have jumped 24%; this will mean higher prices for beef, as well as for salad and cooking oils. The heat also killed 5.3 million chickens. Wheat is the one bit of good news on the farm. This year's harvest is expected to be 10% above last year's, at 2.4 billion bu.