040409 Food Inflation Dips; Beef & Veal Up

April 8, 2004

Food price inflation is slowing a bit, though the popular Atkins diet has pushed beef and veal prices higher. Clothing prices continue to fall, and home furnishings are declining at their fastest pace in five years, thanks to loads of sales, according to a study released Wednesday by Ernst & Young.

The Ernst & Young report, the third price study it's done since last September, looks at three categories from the government's much broader Consumer Price Index reports to see how inflation, or the lack of it, affects Americans' day-to-day purchases.

"Consumers can expect to spend less on apparel and house furnishings," said Jay McIntosh, Ernst & Young's Americas Director of Retail and Consumer Products. "But it's a two-edged sword: It's good news for consumers but it's tougher for manufacturers."

Clothing and shoe retailers' wares have been generally falling in price for the last decade, as more apparel is made overseas and because of greater competition among retailers.

What has changed is that the decline in apparel prices has slowed in the last two years. That's because retailers in the tough economy of recent years stocked fewer items and resorted to making private-label clothing in hopes of making customers loyal to certain brands and less picky about price. Clothing and shoes fell 1.7% in February from the year prior, after falling 2.3% in February 2003 and nearly 4% the same month in 2002.

Prices for everything from couches to coffeemakers have fallen every year since 2001, declining 4.3% in February, compared with a 2.8% decrease in February 2002. McIntosh, who's based in Chicago, says that's because home improvement retailers -- think Home Depot or Lowe's -- are heavily promoting appliances while more traditional furnishings retailers fight back with their own sales, resulting in cheaper prices. McIntosh predicts that more manufacturing of large appliances, like refrigerators, will be moved overseas and will keep prices falling.

Mad cow disease, discovered in the United States in December, apparently hasn't blunted meat prices as had been predicted by economists.

In fact, rising beef and veal prices were the fastest-rising food products among all foods and beverages because of the popularity of the Atkins diet, McIntosh said, and increasing U.S. exports. Food prices rose 3.1% in February, down from a three-year high increase in January of 3.5%.

Food prices won't see sustained declines like apparel and furnishings, he said, "because so much of the cost is labor and commodity-based and you don't have the opportunity to outsource overseas."


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