Consumer Prices Moderate in April but Soaring Food Prices Steal the Show

By Jason Simpkins
Associate Editor

U.S. consumer prices rose less than forecast in the month of April, assuaging some inflation fears, but food prices experienced their biggest jump in 18 years.

The consumer price index rose 0.2% in April after edging up 0.3% the month prior, the Labor Department said yesterday (Wednesday). Core prices, which exclude food and energy, rose 0.1%.

Energy prices stagnated after soaring 1.9% in March, but that's expected to change as both oil and gas have notched a series of record highs this month.

Food prices were perhaps the report's biggest eye-catcher, climbing 0.9% for the month, the biggest upsurge since January 1990. Fruit and vegetable prices rose 2% and bread prices increased 1.5%, CNNMoney reported. The cost of bread was 14.1% higher than the year-ago period. Milk prices rose 0.9% and are up 13.5% from a year ago.

The Bush administration is currently disputing the International Monetary Fund's claim that increased production of biofuels is the biggest factor in rising food prices. The IMF estimates that the shift of crops such as corn and soybeans out of the food supply to produce biofuels accounts for almost half of the recent increases in the global food prices.

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"Those who are arguing that the president's increase in the (renewable fuels standard) is contributing to high food prices are incorrect," Keith Hennessey, director of the National Economic Council, told Reuters.

Instead, the White House is pointing its finger at emerging nations and their growing appetites.

"There are 350 million people in India classified as middle class. That's bigger than America - and when you start getting wealth, you start demanding better nutrition and better food," President Bush at a May 2 press conference according to the Economic Times.

Many economists support that position, but Indian authorities took offense.

Food prices have not been rising continually as developing nations grew, Ramgopal Agarwala, a former World Bank economist and senior adviser at RIS, a research institute in New Delhi, told the New York Times.

"They were static until 2006, then in 2007 and 2008 there was a sudden spark," he said. But India has been growing for the last decade. This is "not last year's phenomena," he said.

"I don't know who advised the president" on his recent comments, Mr. Agarwala added, but his analysis is "subprime."

The administration - and many agricultural lobbies - have embraced biofuels as an alternative to foreign oil, and contend that ethanol use accounts for only up to 3% of the overall increase in global food prices.

Others, including the American Farm Bureau Federation, believe that it accounts for up to 30% of the surge.

On average, food prices increase about 2.5% each year. This year, according to federal data, the overall cost of food is predicted to jump 3% to 4%.

News and Related Story Links:

  • The Associated Press:
    Indian politicians blast Bush over comments on food prices