When the Department of Commerce announced a
rise in the cost of
consumer goods last month, speculation of a
pending interest rate
hike had market watchers jittery. Should
they be? A University of
Georgia economist says probably
not.

“For the past several years, food prices have been
going in
stride with the inflation rate,” said Bill Thomas, an
economist
with the UGA College of Agricultural and Environmental
Sciences.

The latest reports show food prices, along with
gasoline, tobacco
and clothing, rose 0.2 percent in September,
capping an increase
of 2.2 percent over the past 12
months.

U.S. consumers are actually enjoying the lowest
food-price
inflation since the early 1990s with food-at-home
prices through
the first eight months of 1999 averaging only 2
percent higher
than 1998.

Prices are forecast to rise
only 2 percent to 2.5 percent in
2000. Low food prices are, in
part, the result of a low general
inflation rate and large
supplies of meats.

“You have some offsetting situations,”
Thomas said. “This year we
had record low pork prices, but fresh
fruit prices were up almost
8 percent. The prices change with
supply and demand, but have
closely matched the price of
inflation.”

As farmers await the harvest to see how this
year’s drought will
affect their yields, economists are wondering
what low yields
will do to food prices and their effect on the
economy.

“Even though some areas have lost some grain to
drought, it looks
like we will have a nice supply of grain,”
Thomas said. “The
recent hurricanes dumped a lot of rain on
Florida, which probably
drowned out some vegetable and fruit
crops and could raise spot
prices.”

Holiday cooks worried
that the hurricanes washed away their
turkeys, fear not.

“Most of our turkeys are frozen and are already in
somebody’s
freezer. So what happened in North Carolina won’t
affect this
year’s holiday turkey supply,” Thomas said.

“There won’t be a shortage or a major price hike this fall,”
he
said. “What will happen in the future depends on how fast
the
producers recover from the disaster.”

Farmers will
have windows in the harvest as they replant damaged
crops and
rebuild livestock and poultry operations. These may
cause
temporary rises in prices on tomatoes, squash, beans and
other
commodities produced in the affected areas.

“Pork prices
will likely go up,” Thomas said. “Grain prices,
which have also
been low, will go up. But you only have a
nickel’s worth of wheat
in a loaf of bread. So that only means
about a penny price hike.
The prices in the grocery store don’t
necessarily reflect what’s
happening on the farm.”

In the short term, food prices
don’t have a marked effect on the
economy. However, the interest
rate hike often results from the
food and inflation rate going
up. And that could happen if food
prices and inflation rise
faster than expected.

“The Federal Reserve usually raises
the interest rate to slow
inflation,” Thomas said. “They try to
slow down the amount of
dollars chasing goods. Higher interest
rates slow the speed at
which people buy things.”