Americans face sizable increases in their grocery bills this year as a boom in ethanol production diverts more corn from the nation's dinner table to its gas tank. Indeed, their pocketbooks could feel the pinch for years to come.
High corn prices, bad weather and steep energy costs have combined to make food a bigger potential contributor to inflation this year than it has been at least since 2004, when a cutback in dairy production boosted dairy prices and beef prices rose as mad-cow disease disrupted trade.
The Agriculture Department says that retail food prices are likely to climb by 2.5% to 3.5% in 2007, fueled in part by strong demand for corn-derived ethanol. But Michael Swanson, an agricultural economist at Wells Fargo & Co., thinks the rise could be an even sharper 4.5%.
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