Photo: Flickr / jimg944
Everything in your budget is going up except for your paycheck, or at least that’s how it feels.Anybody who took a business class in high school or college probably learned about inflation and the many ways in which economic changes can increase our grocery bills, but it wasn’t until adulthood that we learned the real effects inflation has on our lives.
The current rate of inflation sits at 1.7%, but the historical average is closer to 3%. This means that everything you purchase should rise about 3% every year, but some of your regular purchases may rise even more when others factors are considered.
Even if you’re not heading to the produce aisle and buying ears of corn each week, you’re likely unaware of how many products in your cart are made with corn.Corn hit a 2012 high of $7.13 per bushel in early July because of a drought in corn-growing regions of the United States. This may cause already high prices to soar even higher. If you routinely purchase these grocery items, higher corn prices along with general inflation might affect your wallet.
The primary ingredient in livestock feed is corn. When farmers have to pay more to feed the animals that produce our meat, the price of the product rises. Farmers may reduce the amount of livestock to cut down on feeding costs or market prices may adjust to account for the higher cost of raising the livestock. Regardless of how, an increase in the price of corn will most likely increase the price of livestock.
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In the first quarter of 2012, Dr. Pepper Snapple reported that its revenue increased 2%, but its profit fell 11% due to rising commodity prices. One of those commodities is corn. Corn produces corn syrup, a sweetener found in soft drinks and many other processed foods. As the price of corn rises, the cost to produce corn syrup rises with it. Although corn syrup has received a lot of bad press in recent years due to its questionable effects on a person’s health, it remains an ingredient in many processed foods.
The two staples of Mexican food are corn and beans. Corn is not only used in its unprocessed form as a vegetable in Mexican cuisine, but corn is made in to masa, the dough that makes tortillas, gorditas, tamales and corn chips. In 2007, a rise in corn prices caused the price of tortillas to double in Mexico causing the government to implement price controls. Foods needed to make Mexican cuisine may not double, but they’re likely to rise in price as Mexican cuisine finds increasing popularity in the United States.
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If you love your Corn Flakes, Kix, Corn Chex or any of the other cereals made primarily from corn, you may have to pay more for these breakfast delights in the near future. Even if your favourite cereal doesn’t have “corn” in the title, it’s likely that it contains corn. Remember corn syrup? Whether they are specifically made from corn or not, many cereals list it as an ingredient.
Don’t forget about a favourite snack during movies, or even for those who are dieting. Some species of corn are now grown specifically for popping. Regardless of the type of corn, drought-stricken areas may have an impact on the amount of corn available to make popcorn.
The Bottom Line
Some believe that it won’t take much to see our groceries go up in price this summer. Even something as small as the rising price of corn can do the job. With corn hitting a year-high this past month, consumers shouldn’t be surprised to find many of their favourite grocery items rise in price, too. Welcome to the effects of inflation.
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This story was originally published by Investopedia.