Thursday, August 9, 2012

Feeling the Drought's Pinch

The drought that has afflicted so much of the United States this summer could have far-ranging effects on our economy. There's some concern that the severe weather has been holding back hiring and increasing unemployment, but probably the most dramatic effect could come on consumer prices. The U.S. Department of Agriculture has released a study showing that food prices could rise an average of 0.5 percent next year, above the rate of inflation.

How much is that in real terms? The Wall Street Journal looked at food consumption numbers published by the Labor Department and found that the average American family will likely spend an additional $32.76 on food next year as a direct result of the drought. That's just $2.73 a month.

All told, food prices are expected to rise by 3 to 4 percent next year, counting the drought effects. While that would be above recent rates of inflation, it's important to remember that food costs aren't a huge amount for the average American household budget. Food makes up only about 14 percent of Americans' daily living expenses.

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