With four months left in the year, USDA Economic Research Service economist Ricky Volpe says the drought won't affect food prices now, but it will contribute to higher than average food price inflation in 2013.
Current Consumer Price Index, which measures the change over time in the prices paid for a representative market basket of goods and services, is at 2.5% to 3.5%, unchanged from last month.
"Mostly owing to this drought, how we have seen it affect crop prices, how we expect to see it filtered into retail food prices, we are looking at 2013 as being the year of higher than normal food price inflation for American consumers," Volpe said in a USDA interview.
Selected food groups will cost more than others, Volpe noted. Beef and veal prices are expected to go up 4% to 5% in 2013, which may not be due entirely to drought, but rather pre-existing market conditions and low existing inventories.
"The drought is expected to exacerbate [pre-existing conditions] into heightened inflation throughout 2012 and into 2013, but when people look at these forecasts and they see high numbers for beef and veal, they shouldn’t think that’s because the price of corn is going up," Volpe said. "There are bigger, more longer term issues with those foods."
However, one bright spot for consumers is that inflation for fruits and vegetables are expected to stay normal, at 2% to 3%. And, though higher corn and soybean prices may not immediately affect meat and processed foods, we may still feel the effects into 2014.
"The most important mechanism by which this drought is affecting food prices is we see the price of corn go up, that drives up the price of feed, and in turn the price of animals that go to slaughter or animal products. However, more longer term down the road into 2013 possibly into 2014, we’re going to see these higher corn and soybean prices built into packaged, processed, more shelf stable foods," Volpe said.
As an example, cereals and bakery products, the ERS notes, will likely see above average inflation.
The ERS says the full extent of the drought and its effects on commodity prices are not yet known, and they will continue to update estimates with new drought information as it becomes available.
View the CPI report here.