Drought's effect on food prices: Not much

drought.jpgOn average, we're talking about an extra $32.76 for all of next year, according to a back-of-the-envelope calculation by the WSJ's Josh Mitchell. Or $2.73 a month. Poor people will be hit much less ($16.76) than rich people ($54.07). Mitchell got his numbers by looking at the Labor Department's food consumption figures, adjusting them for inflation, and multiplying the result by 0.5 percent, which is how much prices are expected to rise in 2013 as a result of the drought. It's not super-precise, but it does suggest that the scare stories out there are a little overwrought.

The impact is likely to be much greater on businesses [because] they will have a hard time passing the increases on to consumers amid slow economic growth and a mostly stagnant job market. Economists point out that, given the fragile state of the economy, even a modest increase isn't welcome. Still, the price increases aren't expected to have a major effect on overall growth, since food only accounts for about 14% of consumers' daily living expenses, and given that prices for other items are falling or subdued, bringing down inflation overall.

Earlier: Be careful about drought hype


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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
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