Gas & Grain Prices Plunge, but Food, Power &Transit Prices Soar; Why?

The price of gas is now half of what it was 6 months ago, diesel fuel has dropped in price, as have wheat, corn, other ingredient and commodity prices, not to mention home values and incomes. Most everything associated with consumer costs is dropping in price, yet consumer prices continue to increase at an alarming rate.

Mass Transit providers such as the New York MTA and Long Island Railroad are seeking yet another huge fare increase, and the Long Island Power Authority is seeking a large electricity rate increase. ABC Eyewitness news reported that the Power Authority states that consumers are using less electricity, and therefore bills are lower, and therefore they need the increase because their total income is lower. This is appalling, and simply does not make sense for struggling consumers.

I have personally witnessed the prices climb weekly on nearly every item at our local supermarkets Stop and Shop and King Kullen. When I complained to the store assistant manager about the price increases which I observed last week, she simply shrugged and said "I don't know why."  I want to know why and I am outraged.

Prices are dropping for commodities like this corn being harvested near Auburn, Ill., but economists predict the cost of food for consumers will continue to increase through next year.

Now, with the price of grains and other commodities plunging, it may seem logical that grocery prices will follow. But while prices for some items like milk and fresh produce are dropping, those of most packaged items and meat are holding firm or even increasing. Experts warn that consumers should not expect lower prices anytime soon on most items at the grocery store or in restaurants.

Government and industry economists project that the overall cost of food will continue to climb in 2009, led by increases for meat and poultry. A big reason, they say, is that food companies still have not caught up with the prolonged run-up in commodity prices, which remain above historical averages despite coming down from their highs early this year.

The Agriculture Department is forecasting that food prices will increase 3.5 to 4.5 percent in 2009, compared with an estimated 5 to 6 percent increase by the end of this year.

About a third of the corn crop is used for ethanol, putting ethanol producers in competition with livestock farmers and food manufacturers. The result, they contend, is that prices for corn are now higher and more volatile.

"The connection of oil prices to agricultural commodities is new as of 2007, and it's a major game changer for those in the food production business," said Thomas E. Elam, president of FarmEcon, a consulting firm.

But ethanol advocates counter that the food industry's arguments have been proved false, saying that corn prices have declined as ethanol production is increasing. Matt Hartwig, spokesman for the Renewable Fuels Association, an ethanol industry group, said food companies were "very quick to tell the American public that they had to raise food prices because corn was so expensive, and that the reason corn was so expensive was corn-based ethanol."

Mr. Hartwig added: "Now, clearly, we know that relationship doesn't exist. If ethanol isn't the reason, what is the real reason for food prices going up?"

One possible set of solutions lies with the incoming Obama Administration. Barack Obama has reportedly and wisely chosen New Mexico Governor Bill Richardson to be his Secretary of Commerce. We should look to the new administration and ask them to make finding a solution to the problem of rising consumer costs a top priority in the first 100 days of the Obama Presidency. President-elect has promised a bold new economic plan, and we must suggest to him that  solutions to price issues should be a part of that plan.