By CHRIS MORRIS, Evening News
Chris.Morris@newsandtribune.com
Uric Dufrene is a NASCAR fan. But as an economist, he notices more than the fast cars when he watches a race.
He looks at the empty seats. That, he said, tells a bigger story.
"I call it the NASCAR model for the economy," said Dufrene, an economist at Indiana University Southeast. "At a race at Bristol, I saw empty seats and at Bristol, that is very unusual. But how do people get to the races, they drive there. NASCAR fans are working folks and with higher fuel and food prices, they have less discretionary income."
Which means the money they would spend on NASCAR tickets or other forms of entertainment, is now being spent on staples. Rising fuel prices have led to higher food prices which has slowed the economy, Dufrene said.
"People have reduced spending on items not vital to the household," he said.
It only takes one trip down the aisle of your favorite grocery store to notice the rising food prices. Even Dufrene's favorite yogurt has jumped up in price by 30 cents this year, he said.
While rising fuel prices get most of the blame, there are other factors. However, fuel strongly influences the price of processing, manufacturing and transporting foods. In 2005, the most recent data taken, direct energy costs and transportation costs accounted for roughly eight percent of retail food costs according to The Main Street Economist, a bi-monthly electronic newsletter that reviews the economic challenges facing rural and urban areas.
It all adds up to higher grocery bills ... and it's not slowing down.
The Consumer Price Index for all food is forecast to increase from 3 percent to 4 percent in 2008, according to the United States Department of Agriculture. The CPI for food increased 4 percent in 2007, the highest annual increase since 1990. Food such as eggs, dairy and poultry increased 4.2 percent. Egg prices, for example, increased 1.7 percent in January and are 34.7 percent above the January 2007 level.
The increase has also affected meat prices.
Beef is 4.7 percent above the previous January's level, as higher energy and feed costs have worked their way into the retail market, according to Economist.com. There is also another reason why beef and other meat prices are rising.
As countries like China and India increase wealth, there is more demand for meat in those countries. And, expanding global population is putting a strain on all food supplies. In 2007, the population reached 6.7 billion compared to 5.8 billion a decade ago, according to The Main Street Economist. China has around a fifth of the world's population.
"The rest of the world is growing much faster than the United States," said Corinne Alexander, assistant professor for the Department of Agricultural Economics at Purdue University. "India and China are growing at an 8 to 10 percent clip while the U.S. is growing at 2 percent or less. When income rises in those countries, they use their extra dollars and spend a lot on food."
Alexander said statistics show for every additional dollar made in China, 40 cents is spent on food. In the U.S., 10 cents of extra money is used for food.
So when other countries want beef, pork and poultry, more corn and other grains are needed to feed those animals. That can produce a shortage when there is not enough supply to meet the demand. It may line more money in the pockets of farmers, but it can also increase prices in the grocery store on many different items, Alexander said.
It's not just food demands that is dictating prices. Alexander said there are four markets that drive wheat and corn prices - food, feed for livestock, industrial and fuel for bio-diesel.
"Right now the demand for corn, wheat ... any kind of grain is so large that at the end of the day, it affects all the prices," she said.
Alexander said the prices of items have been elevated because of bad wheat crops in the United States and other parts of the world. She said the wheat inventories are the tightest they have been since 1946. However, a better wheat crop is expected this year, she said.
Feeding the family
Julie Harper doesn't have to have a degree in economics to know all about supply and demand. She sees it every week in the grocery store.
Harper has four children at home and has noticed the rising costs of food.
"I try to budget each week for food," said the Clarksville resident. "I have to watch for sales and coupons. Prices have gone through the roof."
Harper, who said she has always looked for bargains and sales, has especially noticed the rising cost of beef.
"Beef is real expensive," she said. I have to stretch things and make a lot of things from scratch."
Harper said her family goes through three to four gallons of milk each week. She said she looks for sales where she can buy two gallons for $5.
"I've always been conscious of it," she said of prices and smart shopping. "But with this size family, it affects us in other ways. When my children eat lunch at school, I tell them if they want something extra to bring it from home because school lunches have also increased."
Managing a store
Dennis Roudenbush faces challenges each day, battling the major chains for customers. But when other factors such as fuel and delivery prices keep rising, the challenge gets even greater.
As manager of Floyd Central Thriftway, Roudenbush said he has felt the sting of higher prices.
"We are charged a delivery price and it just keeps going up and up," he said. "It's everything ... across the board. Eggs are twice what they were last year. All dairy products are rising."
Roudenbush said this is "the worst I have seen it" in 30 years in the grocery business.
"Gas has never been this high before," he said. "It affects everything."
While some increases are passed on, Roudenbush said you have to maintain prices to remain competitive with the bigger grocery stores such as Kroger and Wal-Mart. He also said his store is trying to cut costs in other areas and be more conscious of rising prices.
"We don't see salesmen as much as we used to. They are making more phone calls instead of coming to the store," he said. "With all the projections we're getting I don't see things getting better this year."