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National Restaurant Association - Economist's Notebook: Food prices expected to remain elevated in 2011

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Economist's Notebook: Food prices expected to remain elevated in 2011

In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy discusses the outlook for food prices in 2011.  Although an improving economy will bolster the business environment for restaurant operators in 2011, food prices are likely to remain elevated, which will further cut in to the bottom line.

 

Restaurant operators will see a markedly improved business environment in 2011, as the National Restaurant Association is projecting jobs and income to grow at their strongest rates in five years.  While the improving economy will help bolster sales, food prices are expected to remain elevated, which will cut in to restaurant operators’ bottom line.

 

After a brief reprieve in 2009, restaurant operators saw their wholesale food prices rise sharply in 2010.  Average wholesale food prices – as measured by the Bureau of Labor Statistics’ Producer Price Index for All Food – jumped nearly five percent in 2010.  This easily wiped out the record-tying drop registered in 2009, when average prices fell 3.8 percent on an average annual basis.  The 2009 decline matched the 3.8 percent drop in 1976 as the largest wholesale food price decline since recordkeeping began in 1967.  Combined with the 2007 (7.6 percent) and 2008 (7.7 percent) gains – which were the largest jumps in nearly three decades – average wholesale food prices were up more than 17 percent in the last four years.  

Looking forward, commodity prices are generally expected to remain elevated in 2011.  Each month, the U.S. Department of Agriculture (USDA) produces short-term projections of primary market prices for various commodities.  In 2011, USDA expects beef prices to grow between 1 and 9 percent, which would build on the sharp 14 percent increase in 2010.  

commodityprices.gifPrimary market prices for pork, broilers and turkeys are expected to remain relatively steady, with USDA projection range including both gains and declines.  USDA’s outlook for dairy prices, which rose substantially in 2010, is mixed for 2011, with butter prices projected to register the only notable decline.

 

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