By Ros Krasny
WASHINGTON -- Overall U.S. food inflation will remain near the historic norm in 2014, even as prices for meat and seafood are pushed higher by disease and widespread drought, the U.S. Department of Agriculture said on Friday.
Prices for shelf-stable and processed items made by companies such as General Mills (GIS) and Kraft Foods Group (KRFT) are relatively flat.
"It appears that supermarkets are maintaining minimal price inflation on packaged food products, possibly in an effort to keep prices competitive in light of rising cost pressures for most perishable items," the USDA said.
But drought conditions in California and other states could further drive up prices of fresh produce and beef, the USDA warned.
The agency forecast wholesale pork prices to jump by 10 percent to 11 percent in 2014, hurt by declining supplies after a virus has killed some 7 million piglets in the past year.
Wholesale beef prices are forecast to jump by 8 percent to 9 percent in 2014, although rising imports are helping to offset some of the decline in domestic supplies.
Food inflation, which includes items bought in grocery stores and in restaurants, is seen at 2.5 percent to 3.5 percent this year and then subsiding to 2 percent to 3 percent in 2015, the USDA said in its first forecast for the new year. Since 1990, grocery store prices have risen by an average of 2.8 percent per year.
The agency noted a recent jump in vegetable prices but said it was too soon to tie the move to the severe drought in California, the largest U.S. grower of fruits and vegetables.
"The ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further," the USDA said.
Fresh fruit prices have risen 5.8 percent in the year through June compared with a year-ago, though prices fell 4.1 percent in June, reflecting a decline in citrus prices and a seasonal shift to summer fruits.
The latest weekly drought monitor from the National Oceanic and Atmospheric Administration shows much of California in an extreme or exceptional drought, the two most severe categories. Pockets of Texas are also in exceptional drought.
U.S. fish and seafood prices were forecast to rise by 3.5 percent to 4.5 percent this year, up from last month's forecast of a 2.5 percent to 3.5 percent gain.
"In general, fish and seafood prices have been climbing due to decreased supplies of certain species and increased consumer demand, as other meats have become more expensive," the USDA said.
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