Do not expect immediate relief in your family grocery budget from the tumble in agricultural commodity prices this summer.
In fact, despite steep pullbacks in grains, livestock and energy, it looks like global food inflation is not going away soon, although the rate could slow next year.
Even if prices continue to slide on the exchanges in Chicago and New York, there is a considerable lag before market trends in underlying commodity input costs are passed to consumers.
By the time today's lower prices for farm goods start showing up on the store shelf and in monthly inflation statistics late this year or early next year, futures could be rising back to new highs, economists said.
"The biggest issue you have on the consumer side in particular is: How much have we fully reflected the price increases, let alone the turn in the cycle?" said Alan Ruskin, chief international strategist at RBS Greenwich Capital.
Manufacturers, with little pricing power in a weak economy are slow to raise retail prices. They are more reluctant to cut prices and forfeit profits when their production costs fall. Worries about the global supply of corn, used for feed, food and increasingly biofuel ethanol, and of rice, a staple in many poor countries, have sparked protests and parallels the food shortages alleviated by the Green Revolution half a century ago. Corn, soybeans, cattle and oil prices reached record highs last month. Since then, the Commodity Research Bureau spot grains index is down 16 per cent. The spot livestock and spot food indices have each lost nine per cent.
Economists say the direct link between commodity markets and the Consumer Price Index, the government's main inflation gauge, is sketchy.
CPI has yet to completely reflect rising prices, even though last month was up 5.6 per cent from a year earlier, the sharpest increase since January 1991. Excluding food and energy prices, "core" CPI was up 2.5 per cent.
According to regression analysis by Mr Ruskin, it can take four to five months for the full impact of rising agricultural prices to show up in the CPI food component.
"The way to look at it is in CPI food next month, there will be the price increases from five months before next month, that will dominate any price decline from the prior month," Mr Ruskin added.
Jim Bianco, president of Bianco Research, a macro economic consulting firm in Chicago argues that inflation causes commodity prices to rise, not vice versa. Commodity prices are so sensitive to inflation that they respond sooner than the lagging indicator of year-over-year CPI.
The US Department of Agriculture last week warned that consumers should expect food prices to rise five to six per cent this year, the largest annual increase since 1990, before inflation cools to four to five per cent next year.
Costs for meat, poultry and fish, which account for about 12 per cent of total US food spending, are forecast to rise three per cent. Fruit and vegetable prices, more than eight percent of food spending, will rise 5.5 per cent.
Food companies were slow to raise prices when commodity costs started to jump, for fear of losing market share to less expensive store brands.