Shoppers see extra fat in food bill

WASHINGTON Veronica Banks, who lives outside St. Louis, said she suspects neighborhood corner stores are charging more for many items under the assumption customers won't pay the bus fare to go bargain hunting. Tom Seluzicki, a certified public accountant in Washington, said he assumes some food prices are artificially inflated to "compensate for lost margins on other products."

Without a doubt, basic economic principles account for most of the increase in the wholesale cost of food worldwide. Bad weather has hurt crops. Economic prosperity has driven up demand in developing countries. And soaring fuel prices have raised transportation costs. Mix in investors betting on continued food-price inflation and you have a recipe for a run-up.

Foodstuffs from rice to steak cost more than a year ago - so much, in fact, that some consumers don't quite believe it all adds up.

But food retailers say consumers' suspicions of gouging are unjustified and that, if anything, they have refrained from passing along their extra costs.

"People have told me I nickel-and-dime them," said Kate Oncel, director of operations at The Brown Bag, a deli in Washington. "They don't understand the position we're in" of paying dramatically more for meat, produce, bread, packaging and deliveries.

Retailers raising prices and shoppers, in turn, raising eyebrows are reasonable and established responses, say economists and historians. While competitive pressures keep most businesses from taking advantage of their customers, some see an opportunity to push prices beyond justified levels.

"I like the beef rib-eye steaks," said Elbert Harris, a high school gym coach in St. Louis, who watched their price more than double to $12.99 a pound in the last 18 months.

Forgoing pricier items are adjustments many Americans can afford and stomach, especially relative to the crises in the more than 30 countries where food protests have raged.

But in the U.S., customers notice when the grocery bill stays the same but the take-home haul lightens. Conversely, most remain quiet when prices stay the same or drop.

"I get upset thinking about how much we have to pay for things, but then I feel guilty when I see other nations that are dealing with horrible poverty," Helen Strouss, of La Mirada, Calif., said last week at an Albertson's grocery store.

Although the wheat futures market did retreat on Friday after the U.S. government forecast a record global crop, corn futures remained near record levels on weather concerns.

Consumers forking over more to fill their gas tanks and stomachs may feel like they've been hit with an unprecedented one-two punch.

But the food-fuel wallop has landed before, said David Hackett Fischer, a professor of history at Brandeis University in Waltham, Mass. In the 13th century, demand for firewood and grain led to broader price hikes. And sellers have taken advantage of the system throughout the 20th century as free market ideas removed many price controls, he said.

The nation's 945,000 restaurants expect to set a new sales record of $558 billion this year, said Hudson Riehle, senior vice president of research at the National Restaurant Association.

McDonald's Corp. and Yum Brands Inc. - parent of Taco Bell, KFC and Pizza Hut - last month reported quarterly results that beat Wall Street estimates on strong international sales despite paying more for many ingredients. Safeway Inc.'s quarterly earnings also beat expectations, but the nation's second-biggest grocery store operator lowered its annual sales growth forecast, excluding fuel, as many of its customers are living paycheck to paycheck.

Restaurants likely will make some changes on the plate, rejiggering portions, and on the restaurant floor, using more technology to gain efficiency and training programs to bolster sales, Riehle said.

At The Brown Bag, where cucumber toppings now cost 50 cents, Oncel has not raised the overall price of sandwiches and salads, but said she will if food commodities and gas prices don't fall.

At nearby TJ's Gourmet Deli, owner Terry Chung said customers can expect to pay 30 cents more per sandwich and up to 40 cents more per pound on the salad bar if economic conditions don't change. His profits are down about 25 percent in recent months, with the biggest cost increase coming in delivery fuel surcharges, which have roughly doubled to $4.50 per order.

Congress also is getting involved with the House Committee on Small Business scheduled to hold a hearing Thursday on food prices from the perspective of small retailers, farmers and manufacturers.

The hesitancy to raise prices unnecessarily is rooted in competition, said Ann Owen, an economics professor at Hamilton College in Clinton, N.Y., and a former economist at the Federal Reserve. But if the cost increases are more permanent, retailers can confidently raise prices because competitors are, she added. But that can't insulate them from skeptical shoppers who see overblown hikes and a panic-hungry media.

"It's a little bit inflammatory ... people stocking up on things they don't need to just yet" said Amanda Wolfe, membership director for a nonprofit in Washington, where signs at one local market alerted her to a coming bread-prices hike due to the jump in wheat costs. Wolfe's own diet hasn't changed, "but I'm single."

Maria Lopez, a mother of two in La Mirada, has had to cut back on eggs and meat since her weekly grocery bill doubled to $200. She isn't sure grocers are gouging consumers, but sees some correlation between rising gas and food prices.

"It probably costs more to deliver goods so I guess that's passed along to us," she said. "I don't see any solution at this point."

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Associated Press Writers Greg Risling in Los Angeles and Christopher Leonard in St. Louis contributed to this report.