Gas And Ingredients Are Cheap, So Why Are Grocery Prices Rising?

With the the cost of ingredients, gas prices, and interest rates dropping, why are food manufacturers continuing to hike prices and shrink products? According to the L.A. Times, supermarkets don’t know, but they’re as pissed as we are.

We noted in July that food prices were expected to rise. The justifications offered by the companies at the time were that the price increases were necessary due to the rises in the cost of production and commodity prices.

When we wrote that post, gas was about $4 per gallon. The price has fallen dramatically since September, to around $2 per gallon, about what it was in 2005. So fuel costs are no longer a justification.

The Times article cites a few examples of products whose main ingredients have also decreased in price, yet the products themselves have gotten more expensive (and gotten smaller). Kraft macaroni and cheese, for instance, went up by 9% this year, even though cheese and wheat prices have dropped by 38-68%. There’s a chart that lists the drops in commodity prices over the last year; pretty much everything but chicken wings and pineapples have decreased in price.

Manufacturers blame the price increases on futures contracts they unwisely bought, and now they’re paying too much for cheapened ingredients. Bad speculation strikes again!

Grocers, name-brand food producers at odds over prices [L.A. Times]
(Photo: billadler)