Rising food prices pinching consumers

Two months of sharp increases in food prices show grocers are starting to pass along their higher wholesale costs to consumers.

Retail food prices rose 0.4% in March, the same as in February and the largest amount since September 2011. By comparison, the prices of all consumer goods rose 0.2% in March and 0.1% the month before, reports the Bureau of Labor Statistics.

Beverly Cabellon, 61, of Pleasant Hill, Calif., was taken aback by the $38 price for two steaks at Costco recently, up from the $27 she paid last September. "I will be grilling more vegetables and shrimp this summer," she says, adding that she and her husband will likely eat beef once a month instead of weekly. "And I may switch to pork and chicken."

Beef, pork, poultry, eggs and milk have had the most dramatic price increases as drought, a virus outbreak and rising exports have thinned U.S. supplies.

Overall consumer prices rose 0.2% in March, a bit more rapidly than in recent months, and annual inflation was 1.5%, up from 1.1% in February.

Annual inflation was 1.5% in March, up from 1.1% in February. That's well below the Federal Reserve's 2% target, as falling gasoline prices offset rising food costs.

But higher food bills are squeezing households still struggling with meager wage gains, and could crimp spending just as the recovery is expected to accelerate.

Cheryl Stewart, 38, of Perry Hall, Md., says higher prices for meat and milk have prompted her to drive 10 to 15 miles to grocery stores in low-income areas that carry more obscure brands at lower prices. She also spreads the food shopping for her family among three or four stores to get the best prices.

"Living standards will suffer as a larger percentage of household budgets are spent on grocery store bills, leaving less for discretionary spending," says economist Chris Christopher of IHS Global Insight.

A drought that thinned cattle herds two years ago has driven up wholesale beef prices 23% the past year, according to Sterling Marketing. Meanwhile, a virus outbreak in the hog population has pushed up pork prices by 56%, the firm says.

The California drought is likely to lead to higher prices this year for a variety of fruits and vegetables, such as avocados, lettuce and berries, says Professor Timothy Richards of the W.P. Carey School of Business at Arizona State University.

Retailers have absorbed much of the increases. Retail beef and pork prices are up about 7% and 5.3% respectively the past year. But Sterling owner John Nalivka expects sharper hikes of about 10% in 2014.

Andrew Harig, director of government relations for the Food Marketing Institute, which represents supermarkets, said: "(Grocers) held steady (on prices) for as long as they could and now...you're going to see some of these prices going up."

Restaurants are getting creative. Cory Wilk, owner of CityRange Steakhouse Grill, with two outlets in the Greenville, S.C., area, says frugal consumers typically won't tolerate sharply higher prices. Instead, he says he uses smaller and secondary cuts of meat, and combines meat and fish dishes "without compromising quality."

"We had to do some major engineering with our menu," he says.