High oil and U.S. floods may accelerate food inflation

By Karl Plume - Analysis

CHICAGO (Reuters) - U.S. consumers, already feeling the pinch of higher food prices, could be squeezed further in coming months after floods in the Midwest last month damaged crops, and with oil prices near historical highs.

The price of soybeans surged past $16 a bushel to an all-time high of $16.63 on July 3, up 96 percent from a year earlier. Corn rose to a record high $7.65 on June 27, a 133 percent year-over-year jump, driven by concerns that the worst floods in 15 years damaged millions of acres of crops.

Crude oil has eased in recent days but remained near a recent historic high of around $145 a barrel and remained up more than 40 percent from the beginning of the year.

U.S. food inflation is running at more than double the normal rate this year and economists are poised to upwardly revise their food inflation outlooks, especially if oil prices fail to drop further from historic peaks.

"I am very concerned over the impact of that continued increases in energy prices are having across the board," said John Urbanchuk, an economist with expert services firm LECG.

"All of these commodities and all of the food products travel by truck and the price of diesel fuel continues to skyrocket and that's probably going to do more to raise food prices than increases in basic commodities," he said.

"Until we see a sustained break in petroleum prices that provides serious relief, it's going to be a problem for inflation in the United States," Urbanchuk said.

ACCELERATED FOOD INFLATION