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ALEX COHEN, host:

From NPR News, it's Day to Day. A trip to the grocery store is not going to get any cheaper anytime soon. The Agricultural Department now forecasts a four to five percent increase in food prices next year. That is in addition to a five to six percent increase this year. Joining us now is John Dimsdale from Marketplace. John, how unusual is it for food prices to rise so fast?

JOHN DIMSDALE: Yeah, well, food inflation this year is the worst it's been in 20 years. Usually, you know, food prices go up in the 2 or 3 percentage range every year, but we're looking at some very dramatic increases this year, especially when you look at specific foods. Eggs, for example, are up 14 percent this year according to the Ag Department, cereals and baked goods almost 10 percent, dairy products too, fruits and vegetables, they're all up in the 5 or 6 percent range this year.

COHEN: Breakfast is going to be a serious problem.

(Soundbite of laughter)

COHEN: Usually, when we hear about these increases in food costs, energy costs, weather problems are the ones to blame. But haven't those problems gotten somewhat better lately?

DIMSDALE: Yeah, they have. Not only the price of oil, but other commodities that farmers use, like chemicals and fertilizers, have all gone down from their highs earlier this year. And, you know, some of the earlier disaster predictions from the effects of the wet spring and the flooding, they haven't been really realized.

The department's first forecast of the fall harvest came out last week, and they're now predicting near record production of corn and wheat and soy beans, much better than had earlier been thought.

COHEN: OK. So why then is the Agricultural Department predicting a 4 to 5 percent increase?

DIMSDALE: First of all, there is a lag time of - it's several months before raw material costs work their way all the way through the system. And farmers will be quick to tell you that they only get 20 cents from every food dollar. The rest of it goes to processing and labor and transportation. So all of these other factors also effect what we're paying at the grocery store.

Essentially the department is assuming that the volatility in the prices for energy and commodities is going to be with us for a while, at least through the middle of next year. In other words, the recent trends of lower prices for oil and other commodities isn't going to last, and if you look at today's spike in the price of oil, that's a good case in point.

COHEN: John, you mentioned how we'll be seeing this at the grocery store. What about at restaurants?

DIMSDALE: Well, that's interesting. USDA forecast compares prices of food at home with those away from home. And in 2005 and 06, restaurant price and inflation was much higher than in grocery stores, but that changed last year and this year and supposedly will continue next year. Restaurants are now raising prices more slowly than grocery stores. Basically, restaurants are trying to absorb some of their higher food costs to cushion the blow to their customers and to keep them coming in.

COHEN: All the more reason for me to start that diet. Thank you so much, John. That is John Dimsdale of public radio's daily business show, Marketplace.

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