Dry Farm Belt Raises Specter of Inflation --- Forecasts for Smaller Crops, Price Rises of Up to 8% Expected in Drought
CHICAGO -- Economists are likely to sharply increase their food-inflation forecasts in coming weeks if dry weather continues in the Farm Belt, as is expected.</br></br>Until recently, economists generally expected retail food prices to rise 3% to 4% this year. But if this spring's dry weather turns into a drought, says Vincent Malanga, president of LaSalle Economics Inc., it could reduce crop yields so much that by autumn the inflation figure may hit 7% to 8%.</br></br>Three big farm states -- Iowa, Illinois and Indiana -- have had their driest spring since the Dust Bowl year of 1934, says Peter Leavitt of Weather Services Corp., Bedford, Mass. Most forecasters expect the hot, dry weather to continue for several weeks.</br></br>"We think food can be a major catalyst of inflation in 1989," Mr. Malanga said.</br></br>The dry weather and growing fears of shortages are already setting off inflation alarms. Farm prices, buoyed by rallying hog and soybean prices, rose 3.1% in May alone, according to figures released yesterday by the Agriculture Department.