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There's no question the staggering rise in food and fuel prices will eat away at U.S. households' income in coming months.
But there is the question of how U.S. consumers will cope with those increased costs – especially when so many are already worried about their jobs, savings, investments and retirement.
With gas prices nearing $4.00 a gallon, and the consumer price index (CPI) in February for food-at-home up 2.8% from 2010, U.S. consumers are facing an economic double whammy. As food and fuel expenses make up a larger slice of household budgets, U.S. consumers have to evaluate just which goods are worth buying.
Montana resident Myriam Garcia some days has to choose between filling up her truck with gas or buying food.
"I can't really afford to drive to town," Garcia told The Associated Press. "If I can drive into town once a month, I'm lucky. Before, I had three boys so I was always creative with a limited amount of funds. Now I have to be even more creative because gas is so high."
The national average gasoline price was $3.582 on Tuesday, according to GasBuddy.com. Every $1 a barrel increase in crude oil prices means about a 2.5 cent increase at the gas pump, according to Chris Lafakis, an economist at Moody's Analytics. And every 1-cent per gallon increase in the average gasoline price will translate into $1 billion in extra expenses for consumers.
This means rising food and fuel prices are a fierce threat to consumer spending, which drives 70% of the U.S. economy.
"The American shopper was extremely cautious before. And now I'd say they are extremely worried," said Britt Beemer, president of America's Research Group (ARG). "What we are going to see happen is that consumers will try and cut back on all discretionary purchases, until finally they are going to have to make a decision at some point: what do I really have to give up?"
An ARG survey released last week showed 62% of those surveyed listed rising gas prices as their biggest economic concern right now, and about 75% of Americans were shopping less due to higher gas prices.
Economists at Morgan Stanley (NYSE: MS) and Deutsche Bank AG (NYSE: DB) cut spending forecasts based on data showing that U.S. households are using extra cash to boost savings. U.S. retailers fear this trend will continue through 2011.
"The most vulnerable chunks of Consumerville are casual family dining, followed by the frequency of shopping trips and search for lower-priced items, especially end-of-season markdowns," Richard Hastings, a macro and consumer strategist at Global Hunter Securities, told CNBC.
This prompted last week's Money Morning "Question of the Week": How are you dealing with high food and fuel prices? Have you changed your shopping or driving habits? Have you paid more attention to your household budget, or is your spending behavior unchanged?
Readers sent in the following answers about their money-saving techniques, as well as comments on the global food and fuel price rise.
Back to Work
Although I retired in 2005, I recently was extremely lucky to get a part-time job. The extra money has taken away the fear. Nevertheless, I buy nothing I don't desperately need and use all money not spent on food/gas/utilities/insurance/mortgage to pay down debts.
– Linda J.
Stick to the List
I go to my local grocery store Website, read the weekly circular, and click on the items on sale that I need. It makes a shopping list, which I take to the store. I make no other purchases-waiting for sales another time. Saved $49.57 on a bill of $122.00.
– Mary S.
Smaller Portions, Fewer Meals
I eat only two meals per day and I have actually cut the portions of everything I eat by at least 25%. I was in the grocery store yesterday and wondering how much it cost all of the food suppliers to repackage everything in downsized containers. Funny how it did not take long for that to happen, nor does anyone talk about the fossil fuel involved in such a process.
– Donna F.
Spoiled Brats
People in the United States should stop whining about gas prices and even food prices. In most European countries (and I'm sure it's the same in Japan, Singapore, Hong Kong, Australia, New Zealand), gas prices average $7 to $10 per gallon, and higher. I'd like to see gas in the U.S. be on par with EU prices, then things would be more in perspective. It will also get a lot of the much unneeded vehicles off the road, and demand will be there to get a half decent and much needed public transportation system up and running in some of the major towns and cities across the country.
So stop whining – the U.S. has never had it so good – spoiled brats, that all this country is!
– DD.
Use Food as Food
In order to bring down food prices, a good place to start would be putting a halt to mandatory ethanol (corn) in our gasoline. Let's stop burning our food supply!
– Mary W.
Riot Bound
Washington continues to pretend inflation does not exist as the Fed continues to play footsies with their Goldman Sachs buddies. Here is a prediction from someone who lived in the 60's and saw what a disenfranchised populace is capable of: When people are desperate they will ignore the leadership and "take what they need to survive". We are not far off the riots occurring around the world.
– Dave M.
Skipped Town
I moved to Medellin, Colombia where you can live as a king for less than $1000 a month.
– Robert S.
Smart Investing
My extra money is coming from investing in your fantastic recommendations!
– David P.
Be sure to answer next week's question: Do you think we are headed for a U.S. government shutdown? Do you think the parties will reach a budget agreement, or continue with temporary funding measures? How would you be affected by a government shutdown?
Send your answers to mailbag@moneymappress.com.!
Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
Hidden Inflation: Why Prices Are Rising Faster Than You Think - Reuters:
Rising gas prices eating into shopping budgets - The Associated Press:
Gas, food prices double whammy for rural families - Packaging Digest:
Food retailers cope with more inflation than shoppers - CNBC:
Consumers Can Manage Higher Gas Prices for Now - Businessweek:
U.S. Economy: Spending Cools as Food, Fuel Prices Climb - Money Morning News Archive:
Question of the Week Feature
To the bozo who wants Americans to pay as much as Eur pays for gas; our economy is not the Eur economy. The dynamics are not the same. There is no logical or sober reason why our fuel should cost the same as Eur. In fact our retail cost should be much lower than it is. It is insame to pretend that the prices that apply to the European marketplace should be imposed on the shores of America. Become an original thinker-give it up already!
I had been bicycling to work a few days a week, both to reduce my personal oil-dependence and to get more exercise, but my office recently announced we would move to a different location that would more than double my commute. I've therefore added a large trunk ($50) to my motorcycle to make it more practical for daily commuting. Although I'll be buying more gas than I did when bicycling, it'll be about half what I would if I had to drive my car every day.
In the USA, we are our own worst enemy.
The cause is STUPID DEVELOPMENT and endless suburban sprawl. We don't really need to live on "God's Little Acre" 40 miles from the city. We shouldn't be building distribution centers and industrial parks in the middle of nowhere with no railhead, when there is ample room in cities. Workers have to drive in, as there is no public transportation.
Then we have short-sighted governors like in Wisconsin and Florida spurning high-speed rail. Oh yes, Florida is also the poster child for stupid development.
What good is it to live in a jobless bedroom community?
And don't get me wrong, I like cars, but I would rather drive 5 miles instead of 40 to go to work.
Reconsider the types of food that you eat. The cheapest cuts of meat with the most fat plus the cheapest greens will give you the best energy and will lead you away from insulin driven hunger pains. No veg oils, avoid root vegs, easy on the fruit (fresh only ) and scrimp on grains. You will be healthier and more energetic and will have more money in your pocket.
Ed the grocer
The part of the article that hits me is the price of gas. The concern is $4.00 per gallon. With my comment last week to Kent's story about Sid and his endeavors with owning a gas station, and our price of gas in the Great White North being currently above $5.10 per gallon, there is little sympathy nor empathy. Welcome to Canada, USA!! oh, and by the way, with bank fees and the current $C., be prepared to fork out $1.05 US for each Canadian dollar! That means a gallon of gas will cost you $5.36 US. Does that hurt yet?
fuel is the dilemma regarding the risk of diverting farmland or crops for biofuels production in detriment of the food supply on a global scale . fuel or food or fuel debate is international in scope with good and valid arguments on all sides of this issue .
Government needs to take oil off speculative market presently price off oil more than 60% speculation . price of oil over 35 dollars per barrel on unknown loss of 1 million barrels from Libya which North America does not deal with 1million times 105 = 105 million dollars 85 million barrels speculation of 35 dollars per barrel exessive profit of over 2 billion dollars per day Lack of oil BS. Never was and never will be. Use your house as a shelter not investment only ones making a profit are morgage companies and realators. Large companys pay taxes on gross not net , Companies that took bailout funds no huge payouts forever to employes. Dual fuel for all vehicles entering North America or made here gas LNG < propane or electric. What are you going to do with your electric car if the waranty is only good for 7 years on the batteries who is going to buy a second hand electric car. Recycle all used oil vegetable as well as fossel fuel You in US work on your congress and senators and in Canada we will work on our MLAs and MPs We need changes and it will be up to us to see that they are made
Detroit is to a large exent responsible for the mess US is in today. They shut down the trains and buses. Bring back the trains and buses.
As a retired family we have little need to drive that much. My wife and I have a 2006 RAV4 and a 2010 Prius. We do drive the prius more for obvious reasons. A friend noted " isn't itinteresting that many manufactures now have 40 MPG cars now." The longer gasoline is higher the better! I do wish more poeple would seriously conseder Sea Solar Power ( I have no financial interest)
My 90 year old father told me that gas is cheaper than it's ever been. Since he isn't senile, I asked what he meant while reminding him that, in his day, gas use to be 19 cents a gallon. His answer was "you're right, but we were only paid 10 cents an hour". He makes a valid point.
Hydrogen my dear friends is the answer but our leaders will not lead us and the capitalists are to lazy or to fat to take us there. The time is not right yet, my little chickadees, you will know, when you will know, when the time is right. Wow is the person with debit NOW for he shall know a living hell on earth SOOON. Did you save anything today for tomorrow. Are you eating so much you are 100 pounds overweight, or 25 pounds overweight? Do you believe the sword is more important than the shield? Do you know SKILL is more important then either the sword or the shiled, and the final weapon for this situation is the brain, all else is supplemental. SO get off your dead keister and use your head for once in the last 70 years. Stop crying in your soup and DO SOMETHING TO HELP YOURSELF BESIDES SUPERFICIAL ACTIONS. DO SOMETHING TO HELP YOURSELF THAT TAKE WILL, GUTS, AND LONG TERM COMITIMENT. STOP YOUR WHINING YOU CRY BABIES.
There is always going to be a price to be paid for liars and cheats. Barney Franks, Chris Dodd and Chuck Schumer should be hand cuffed in publicly frog marched off stage. Folks, This just ain't going to happen but if it did, at least it would be a decent start holding the some of the right people responsible.
Also I'm thinking reparations are in order for anyone who can prove they voted for Barack and paid good money for the their own higher education. Lets start a petition to recover those wasted moneys. But only if they demonstrate a genuine contriteness and perhaps a willingness to be reeducated.
I really feel for those having to squeeze a nickle these day. Buy industry is character building and I hear it from some here. Those who think the Gov. owes them something. They are starting a new country on the Gold Coast. The national emblem will is purported to be a giant suckling pig with all her little piglets attached.
I see the biggest problem being the devaluation of the USA dollar caused by all this fiscal easing (printing money). The USA$ being the reserve currency, the rest of the world won't put up with this for much longer, everyone will sell your money as it is becoming worth less and less everyday, a new reserve currency will form and then you will see inflation like never before. The USA as we know it is doomed!!!!!!
What a frankly great piece.
Terrific post..