The increase for 2008 is due partly to higher costs for meat, poultry and fish, which make up about 12% of total food spending. Overall, costs for these items are forecast to rise 3% compared to 2.5% estimated last month. Prices for fruits and vegetables, which account for more than 8% of food spending, will also rise 5.5% versus 5% predicted in July. USDA also forecast increases this year of 9.5% for cereals and bakery products, a 14% surge for eggs and a 13.5% hike for fats and oils.
The cost of energy -- used to transport, package and process foods -- is still boosting food prices, even though energy prices have dropped. "We haven't seen those prices reflected in the finished products yet," says USDA secretary Ed Schafer. Farmers get 20 cents of the food dollar and the rest goes to processing, labor, transportation and distribution.