Food Prices Expected to Increase in America

Drought conditions have started to drive prices up at the supermarket.
3:00 | 03/18/14

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Transcript for Food Prices Expected to Increase in America
Okay. It is Tuesday march 18 the markets are perpetrated -- new York at today's big number. 3.5. Percent that is how much food prices are expected to rise this here. Yet another drag your budgets and family income. It's gonna -- at home and at the nation's fast food restaurants. Everyone -- down Cutler in New York for more on the economics of the big number when a bridge at MacKey got finance mr. -- -- Tuesday morning to you sir. And -- you my friend 3.5 percent what's behind this expected jump in prices. You -- we've seen a huge run in the commodity market all those crazy guys you see in the Chicago pits -- and hand signals at each other. They've been -- prizes and hogs going aren't having -- coffee prices spike. A lot of it is related to the drought in California it's hard to picture with it's snowing constantly. On on the East Coast. California is having exactly the opposite problem so the speculators. Have been driving up the commodity -- eventually that trickles down to the consumer. Which brings us to the federal forecasts every idea here is simply that if it cost a lot more to buy a big huge pound of hog. Eventually that's ventricle major -- more expensive so bad that sort of -- to chilling forecast but we've been looking for inflation for awhile. Mother nature really play a role in the so he -- hogs are up what 42%. -- up 70% and -- cocoa is well. -- is wrapping it basically if you can eat it it's more expensive is here and and we're seeing that. Across the world and and in emerging markets -- a huge huge headwind for emerging markets which continue to try to recover. It's important to note no matter how it feels at the grocery store. Statistically speaking it's been really muted in terms of inflation for what -- cost put breakfast on the table. So it feels worse than it is typically about three and a half percent. Is a forecast. That's not actually what has happened yet and the forecast for the last 34 years have been running -- too hot for -- the reality we've seen does not time to panic yet. But it's time to maybe consider that it could be getting more expensive. To have dinner breakfast and -- journal well let me ask that about that disparity between the forecast and the reality how great has that I -- just to kind of give -- that someone advocates say yes in fact we might have to -- as -- -- percent but the reality may be. Lot closer and closer to 1% as what we've seen over the last few years which is not all that bad and in fact a huge difference in terms of the forecasting. Of these things some of the reasons that down and and it doesn't make that much intuitive sense of vigor of the raw commodities are -- 70% more. That should trickle down -- consumer it doesn't happen for a couple reasons the big corporations. Have all these hedging programs it's called so if your Starbucks. You can't afford to have your price -- -- go up 71%. So use a lot of trading techniques and hedging. There's also competition grocery stores are in insanely competitive business. They are -- to pass that price on to consumers. So we've got a lot of the free market new putting some of the impact at home it's one her reasons capitalism works. Is that you don't see that one to one increase the government frankly been trying to stimulate the economy trying to get a little inflation. If only because they did sort of bubbles things along on an economic basis. It just hasn't happened -- it aides suggested grants for all the promise we -- in the economy rising prices. And people hate it when I point this out but rising prices -- the -- -- just haven't been a problem yet no matter what you see February is a tough month but that does not make a trend just yet. Well profit margins aggression -- historically obviously never been anything significant but its biggest thing of copy we brought to the average price per pound -- the past three years. And these are the numbers that we came up with the 2011 -- -- -- to a pound 2012538. Pound. And it 2013. 574. Pound -- of the biggest up between the 2012 and eleven but. You know. It's it's it's it's always interesting to note about that when those basic commodities will trickle -- -- everything else because we look at the facts like hogs what might be eating bacon today but it is it is involved intrinsically -- -- -- of their products that we -- battery and. It is and that was copied their -- and a certain amount of substituting your -- to your caffeine all kinds of different ways. But you're right copy is one of those commodities a good point here and say we are seeing some inflation on their side. But think about what the economy's been through over the last few years in terms what you feel dated a your mortgage rate matters to be a lot more. Your coffee it's more expensive by the pound but it cost about the same if you go to Starbucks. And so you see a lot of these different alternatives in the economy. In terms of at least trying to get your table now 3.5 percent that government forecast is hot it it could be a problem it's a scary headline. But as I said -- these are really volatile numbers. And we need two -- three months of a trend on the inflation side before you start hitting the panic -- so don't start storing coffee in your basement just yet. But keep -- time. All right well listen also big numbers about this when Labor Department with a Consumer Price Index for the month of February. Up a tenth of a percent. For the month February food prices and -- were a factor here as well so breakdown these numbers behind this. Again consumer price again point 1% is the men and -- -- it it's nothing food prices. We talked about the tough February saw some spikes in poultry -- some beef prices go higher but for the most part there just hasn't been an inflation point 1% is actually. Much lower than what the government would like to see that doesn't make intuitive sense and it's not a big government conspiracy. It just means that the government in a healthy economy would like to see maybe 2% inflation. Because that means that more people are trying to buy more goods it's simple supply and demand point 1%. Is a little low for their government it's good for consumers bad overall in terms of the economy you'd like to see -- higher number CPI. Again there's that disconnect -- -- percent big huge number very scary inflation consumer prices as a whole point 1%. And it's almost nothing you -- you can. Percent while no matter how tight your budget is the rubber hits the road and often times it can be shocked right there before it was -- is also higher that's all flights and it all comes back route right what I think about it or let together Dallas -- in positive territory up about eighteen points to sixteen. By. Jeff MacKey from Yahoo! finance god -- -- coffee this morning mr. MacKey. Better have -- now before across and twenty -- exactly there you go the way -- right there of course you give up the latest headlines right here is dot com you know watching the big number. And -- -- -- New York.

This transcript has been automatically generated and may not be 100% accurate.

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