Grain, fuel costs driving up prices

The U.S. Department of Agriculture said price increases for cereals, baked goods, sweets and poultry would be higher this year than it expected because of accelerating costs for grain and fuel.

The price of cereals and baked goods will rise 9% to 10% in 2008, the most since 1980, the USDA said. The estimate, up from 7.5% to 8.5% in May, doesn’t reflect flood damage to Midwest crops, which will be included in a July report, the USDA said.

Retailers are passing higher food prices to consumers as global demand boosts U.S. exports, production is disrupted by harsh weather and more crops are used to make fuel, the USDA said. Corn, wheat, soybeans and rice have reached records this year, while beef, pork and chicken prices rallied.

Although the department left its estimate of overall food-price inflation unchanged at 4.5% to 5.5%, the June revisions “imply that we are in a higher part of the range now,” USDA food economist Ephraim Leibtag said. “No company that operates along the food chain is immune from or hasn’t felt the effects of high agricultural commodity costs.”