Saturday, March 15, 2008

Federal Reserve: Oil Increases Boost Food Costs

Federal Reserve Bank Kansas City Food Inflation Energy Costs Oil Gasoline Gas food vs fuelEconomists have long shown that rising energy prices play a more significant role in food inflating the costs of retail food prices.

A new report continues to show that higher energy costs are driving up food prices.

What is Driving Food Inflation (pdf), released by the Federal Reserve Bank, Kansas City, explains the impact of higher energy prices on retail food prices.
Energy prices are also a large component of the retail food dollar, boosting prices by raising the costs of processing, manufacturing, and transporting food...
Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices (Reed et al.). As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices
With crude oil prices soaring above $110 a barrel, we can expect to see higher prices, pain and misery not only at the gas pump but also at the grocery stores, bakeries, restaurants and even our favorite pizza hangout.

Source: Federal Reserve Bank, Kansas City


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