Each week, our panel of eight local economists answer a question about the state of the economy. Besides gas prices, consumers are noticing rapid increases in food prices, putting an additional squeeze on household budgets both here and abroad. So the question is:
Do rising food prices here and abroad pose a serious concern about economic recovery?
The panelists answered 2 “yes” and 6 “no.” Agree or disagree? Add your voice in the accompanying poll and see if readers break down along the same lines.
Kelly Cunningham, National University System
Answer: Yes
The respite of the federal government not raising personal income taxes at the beginning of the year is quickly being nullified by both rising gas and food prices. The higher costs essentially impinge whatever economic recovery could be taking hold.
Spending on food accounts for 11 percent of a typical household budget in San Diego, almost as much spent eating out as consumed at home. Food prices reportedly have been flat the past two years.
Households and visitors will doubtless absorb the higher costs by further cutting back spending and impacting San Diego’s restaurant, retail, and entertainment businesses.
James Hamilton, University of California San Diego
Answer: No
Food price increases will put added strain on consumers’ budgets and squeeze profit margins for many firms, but I don’t see this as something that is going to put people out of work.
Food inflation may well put the nail in the coffin of any further quantitative easing from the Fed, and cause them to look at raising interest rates sooner than they otherwise would.
In the absence of any inflationary pressures, I would have expected the Fed to wait until well into 2012 before raising interest rates.
But if inflation begins to creep up, the Fed may have to act sooner, and that could certainly pose problems for the recovery.
Lynn Reaser, Point Loma Nazarene University
Answer: No
Rising food prices will not derail the global recovery but will have important effects. They will cause a shift in wealth from food consumers to producers, ranging from firms to nations. In the United States, food accounts for only about 15 percent of a typical household budget versus about 40 percent for housing.
Although higher food and energy prices will dampen consumer spending, many companies will have difficulty fully passing on commodity cost hikes.
Developing nations face greater challenges because of much larger effects on consumers, inflation, and potential social instability.
Marney Cox, San Diego Association of Governments
Answer: No
Although the answer broadly is “no,” the economy is made up of individuals and each individual’s ability to cope with rising prices is different. Having said that, the recent spike in commodity prices, including food, is not yet a “serious” threat to the economic recovery.
The rise in most commodity prices likely reflects a correction after the commodity price collapse in 2008-09. Food prices are being impacted by the growth in “emerging markets” as tastes broaden with income growth, financial speculation, and government regulations on trade, to name a few.
In the longer run (year) as long as supply curves slope upward farmers will respond to higher prices by producing more.
Gary London, The London Group
Answer: No
At least not in the U.S., where at-home food consumption represents only 7 percent of expenditures in the average household. (Although the percent is much higher in other, less prosperous countries.)
Most households will conserve in other areas, particularly in travel as it is gas prices that are the major concern: food price increases are a residual of the increase in fuel costs.
However, this might be an opportunity in many households to engage in behavior modification such as portion control, since the American obesity rate is the highest on the globe.
Alan Gin, University of San Diego
Answer: Yes
The economic recovery is still fragile, so anything that takes money out of the hand of consumers is a potential threat. If people have to spend more on food, they have less to spend on discretionary items such as clothing, restaurant meals, services, etc., which would hurt sales and employment in those sectors.
Although I don’t expect it to happen in the United States, a potential worry is that rising global food prices could cause social unrest in some countries. The recent crisis in Egypt was partially sparked by food shortages and a sharp rise in food prices.
Norm Miller, CoStar Group
Answer: No
Any time we have rapidly rising prices for necessities (food, oil, clothing) it poses hardships disproportionately on lower and middle income households but it is not a SERIOUS threat to the recovery.
Rapid price changes shift demand as we try and substitute other goods, so what hurts one sector can actually help another sector of the economy.
The key is that we in the U.S. must be the ones producing some of those alternative goods. U.S. cotton farmers, as an example, are doing well. The key is to have an adaptable less regulated economy so it can react.
Dan Seiver, San Diego State University
Answer: No
Rising food prices will hurt food consumers all over the world, and will make it more difficult for poor people to eat an adequate diet.
Rising food prices will also slow the economy recovery a bit in the U.S., although they will help farmers, and will contribute to a nascent bubble in U.S. farmland prices.
But food consumption is too small a proportion of household budgets to actually derail U.S. economic growth.
