Milk, fuel in race to $4 benchmark

ATLANTA — Call it the $4 question.

Will a gallon of gas or a gallon of milk cross the mark first?

Food prices notched their largest one-month increase in 18 years in April, giving shoppers the kind of sticker shock that SUV owners are getting used to at the pump. Milk prices, which had retreated from November's high of $3.90 for a gallon of whole milk, edged up to $3.80.

Higher costs for fuel and commodities are working their way through the food chain, pushing prices higher at retail. Food prices jumped 0 .9 percent in April, with increases in all six grocery categories, according to Consumer Price Index figures released Wednesday.

It's shaping up as the second year of the highest food inflation in nearly two decades. Last year, food prices rose 4 percent.

Earlier this spring, government economists had predicted up to a 5 percent increase in food prices in 2008. That may change because of uncertainty over fuel prices, said Ephraim Leibtag, an economist for the U.S. Department of Agriculture. Food commodity price increases are starting to moderate, but fuel costs keep rising.

"It's hard to tell at this point, with the volatility, exactly where things are headed," Leibtag said.

Wednesday's announcement renewed calls from food manufacturers to curb the federal government's ethanol program, which they contend is driving up food prices by diverting corn to fuel use. Many processed foods contain corn products such as high fructose corn syrup or starches. Environmental groups have also lobbied Congress to cut food-to-fuel mandates to alleviate rising food prices globally.

"It's clear that American families are facing unbearable pressure — pressure that Congress can help relieve by revisiting and revising the mandated diversion of corn to ethanol production," said Scott Faber of the Grocery Manufacturers Association.

Food prices are rising for a variety of reasons. A 30-page report issued earlier this month by the U.S. Department of Agriculture points to factors ranging from higher global demand for some foods, especially meats, grains and vegetable oils, to declining stocks of others. Trade restrictions, rising oil prices, demand for biofuel production, a weaker U.S. dollar, computerized hedge-fund trading in agricultural commodities and weather conditions also play a role.

The bottom line: Shoppers are paying more for most food staples, but price increases at retail don't mirror the big jumps for commodities on world markets. Although the price for a ton of rice has tripled in recent months, the cost of a pound of rice in supermarkets has risen just 5 cents a pound, to 61 cents.

Processed fruits and vegetables were up 3.4 percent in April over the month before, and fresh fruits up 3.2 percent. Coffee was up 4 percent, and carbonated beverages rose 2.2 percent. Bread prices were up 1.5 percent over March figures.

It's still unclear when shoppers will see any relief from rising prices. If the Northern Hemisphere has good crop conditions for the rest of 2008, commodity prices could decline significantly, according to the agriculture department. But with stored staples at the lowest levels since the '70s, a poor crop year in a major production region could send prices even higher.

Elizabeth Lee writes for The Atlanta Journal-Constitution.