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Who suffers most from food/gas hikes?

No surprise, it's American families. Many of their homes are worth less than they paid; now what they can afford to eat and how much they can drive is being affected.

By doubleace Mar 7, 2011 9:55AM

This post comes from Lynn Mucken at MSN Money.


The American family is about to get kicked in the stomach -- twice. Food and gasoline prices are going up, relatively quickly and probably by quite a lot.

 

The U.N. Food and Agriculture Organization announced March 3 that global food prices were the highest in history, up 34% in the past year. Two days later, AAA said that gasoline prices nationwide had reached $3.49 a gallon, up 16 cents in a week and 75 cents from a year earlier.

 

After housing, food and gas are the two biggest expenditures in American households. Let's look at both of those: Post continues after video.

Feeding a family

According to the USDA, the average family of four, eating on what it described as a "moderate cost plan," spent $228.80 a week on food it prepared at home in January. That's about $972 a month -- and doesn't include trips to the burger drive-thru or delivered pepperoni pizza. And believe it or not, Americans have been getting off easy; the World Bank said last month that 44 million people worldwide have been forced into extreme poverty since June by food inflation.

Faced with a customer base battered by high unemployment, stagnant wages and housing worries, U.S. manufacturers and retailers have been reluctant to pass on higher commodity costs, coping instead by doing things such as changing ingredient quality and downsizing packaging. The consumer also has been helped by the fact that grains, which have the fastest rising prices on the world market, make up only about 10% of the cost of the U.S. diet (Americans eat a lot of processed food).


The honeymoon will have to end, however. Companies cannot squeeze the profit margin forever and still stay in business, and those exploding commodity prices will eventually find their way to the consumer.

Goldman Sachs analyst Andrew Tilton told The Associated Press he expects consumer food inflation to jump 5% by the middle of 2011. And it might get even worse: Americans are still big meat eaters. Grains are the biggest cost in raising cattle, pigs and poultry. Corn prices on the Chicago Board of Trade have gone up 87% in the past year; wheat 58%. You do the math.

 

Feeding the gas guzzler

Odds are that the U.S. family of four has two cars; it needs them to go to work. And those cars do double duty, hauling kids to band practice, soccer games, Scout meetings and birthday parties. The typical car is driven between 12,000 and 15,000 miles a year.

 

Splitting the difference and computing conservatively, let's say the family has two vehicles, each driven 13,500 miles a year and getting 23 miles per gallon. On March 5, 2010, that family was buying gas at a rate of $3,193 a year. A year later, it is $4,096. If gas goes to $4 a gallon -- a foregone conclusion, given the turmoil in the Middle East and the fact that gas was $3.87 in California and $3.68 in New York on March 5 -- the rate will be $4,695. And if the pessimists, or maybe realists, are right, gas will go to $5, and the yearly cost will jump to $5,869. That is $113 a week for our hypothetical family.

 

Will the oil industry, like the food providers, try to keep the price of its product in check? Well, they can't cheapen the ingredients (that pesky octane rating, you know) or sell it in smaller packages. Nor will Big Oil be cutting its profit margin, if the price run-up in 2008 is any indication. Oil companies reported record profits on $4 gas then, while dealing the U.S. auto industry a near-fatal blow and decimating the budgets of Americans caught with low-mileage SUVs.  

 

What's a family to do?

Consume less, of course. And Americans already are trimming back.


A nationwide survey by the American Dietetic Association Foundation found that 73% of family meals -- breakfast and dinner -- were eaten at home in 2010 versus 52% in 2003, probably because of the economic problems. But remember, restaurant food was not included in the $972 monthly cost mentioned above. Also, food price increases for in-home meals were 16% higher than restaurant increases in 2010.


Cutting way back on junk food would probably solve the problem. According to the National Cancer Institute, 40% of the calories eaten by kids 2 to 18 are derived from soda, sugar-sweetened beverages, cake, cookies, donuts, ice cream, pizza, and whole milk (rather than skim).


On the gasoline front, people have been buying smaller, more fuel-efficient vehicles in record numbers since the 2008 debacle, although there has been some backsliding.


Still, the best answer is to do your bit to affect the gasoline suppy/demand equation by buying less. Americans said "enough is enough" in 2008, and reduced their monthly driving by 15 billion miles. The drive to Disney World might have been sacrificed, but gas prices promptly dropped.


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