Food Prices Likely to Get a Double Dose of Inflation from Gulf Crisis, U.S. Says
WASHINGTON -- The Agriculture Department warned U.S. consumers to brace themselves for a double jolt of food-price inflation this year and next because of the Persian Gulf crisis.</br></br>Energy-price increases stemming from war jitters and the international embargo against Iraq already are beginning to drive up costs of growing, processing and distributing food, the department said. Most of the oil-price shock in the food sector, however, is expected to be felt in the first half of 1991.</br></br>Department analysts said they expect food prices to average 5% to 7% higher this year than in 1989, a two percentage-point jump from the department's December 1989 prediction. The increase reflects not only the economic repercussions of Iraq's Aug. 2 invasion of Kuwait but also unrelated double-digit price increases on fresh fruit, pork, eggs and dairy products in the first half of 1990. Last year, food prices climbed 5.8%, the sharpest increase since 1981.</br></br>The food-inflation forecast for 1991 won't be issued until November, but department analysts projected that oil prices alone will boost food prices 1% to 2% next year, primarily through higher transportation costs. However, they added that a further economic slowdown would relieve some of the upward pressure on food prices.</br></br>At the same time, problems are brewing in the Farm Belt. Department analysts project a $1.7 billion jump in farm production costs if crude oil prices remain at $30 a barrel through 1991, and a $2.6 billion jump if oil hits $40 a barrel. Although farmers could find some savings by changing their production practices, net farm income is likely to drop in 1991, they said.