PRICES: Food Calms Down

No part of the inflationary wave that swept through the U.S. over the past three years hit consumers harder than spiraling prices at the supermarket. From 1972 to the end of last year, the cost of food jumped 42%, reflecting the price-boosting pressures of the big Soviet grain sales, drought, destructively heavy rains and lively speculation on commodity exchanges. Now the price wave seems to be subsiding. During the past six months, food prices rose by only 1.1%, and Agriculture Department economists forecast an increase of no more than 3% for the rest of 1976, compared with 8.5% last year.

Market-shelf prices actually fell from January to February; the decline was only 1.5%, but it was the biggest monthly slide in the grocery component of the consumer price index since the early 1950s. The sharpest drop occurred in the area where housewives had been hit hardest: the meat case. Beef prices plunged 6% as cattlemen, reacting to dwindling demand, trimmed the sizes of their herds and pumped beef onto the market. Beef prices may well rebound in coming weeks as supplies begin to tighten again: when store prices begin to edge up, hamburger will probably rise relatively more than prime steak, largely because it had showed the biggest decline. The expected run-up in beef prices should end this summer as larger supplies of cattle come to market.

Hog Crop. The dynamics of U.S. food production has not been so balanced in favor of the consumer since 1971. Dairy prices have gone up 6.5% in recent months, but a decline soon is almost assured because milk production is rising; butter and milk prices are beginning to slide at the wholesale level. Bountiful supplies are also depressing poultry prices. By late summer, say economists, the cost of pork should tumble as more of the big crop of hogs farrowed last winter comes to market. Canners’ and distributors’ stocks of most fruits and vegetables are large, and in some cases they are selling to retailers more cheaply than at any time since the fall of 1974.

No one seems to be suffering seriously from the calm in food costs. Farmers may be getting less for what they produced than in 1972 and 1973, but they are still doing well. Says Agriculture Department Economist Dawson Ahalt: “What they have lost in prices they are making up in volume.” Moreover, profit margins for processors, wholesalers and retailers remain healthy.

What could upset the relatively pleasing picture? A weather disaster affecting this year’s corn, wheat or soybean crops could do it, but the impact would not be noticeable on market shelves until 1977. Although many farmers from Iowa to Texas are worried about a drought, and there has been some damage to the winter wheat crop, grain prices have so far been only slightly affected. The outlook is for continued calm, with the main beneficiaries—in this election year—being the millions of middle-and lower-income families that spend more of their available cash on food than wealthier Americans.