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Wholesale prices spike on steep rise in food, oil
March, 2011 | commentary piece
Higher energy costs and the steepest rise in food prices in nearly four decades drove wholesale prices up last month by the most in nearly two years. Excluding those categories, inflation was tame.

The Producer Price Index rose a seasonally adjusted 1.6 percent in February, the Labor Department said Wednesday. That's double the 0.8 percent rise from the previous month. Outside of food and energy costs, the core index ticked up 0.2 percent, less than January's 0.5 percent rise.

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.

David Resler, an economist at Nomura Securities, said the jump in prices is likely temporary, echoing remarks made by the Federal Reserve on Tuesday. Much of the increase in food prices was due to winter freezes in Florida, Texas and other agricultural areas, Resler said. Turmoil in the Middle East is a major reason that motorists are facing higher gas prices.

"Both food and gasoline prices are going to stop rising so rapidly," Resler said.

But John Ryding, an economist at RDQ Economics, disagreed, noting that consumers will feel the impact for some time.

"We do not buy the Fed's reassurance that these pressures will be temporary and we believe the public, seeing these strong increases in food and energy ... will not be marking back down their inflation expectations," Ryding said.

Gas prices spiked in February and are even higher now. The national average price was $3.56 a gallon Tuesday, up 43 cents, or 13.7 percent, from a month earlier, according to the AAA's Daily Fuel Gauge. Rising demand for oil in fast-growing emerging economies such as China and India has pushed up prices in recent months. Unrest in Libya, Egypt and other Middle Eastern countries has also sent prices higher.

But economists expect the earthquake in Japan to lower oil prices for the next month or two, which should temper increases in wholesale prices in coming months. Japan is a big oil consumer, and its economy will suffer in the aftermath of the quake. But as the country begins to rebuild later this year, the cost of oil and other raw materials, such as steel and cement, could rise.

Oil prices fell sharply Tuesday as fears about Japan's nuclear crisis intensified. Oil dropped $4.01, or 4 percent, to settle at $97.18 per barrel on the New York Mercantile Exchange.

Prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

There was little sign of inflationary pressures outside of food and energy. Core prices have increased 1.8 percent in the past 12 months.

Separately, the Commerce Department said Wednesday that home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century.

The building pace is far below the 1.2 million units a year that economists consider healthy.
COMMENTARY:

As a part of the vibrant commercial industry in San Diego, California, Innovative Cold Storage Enterprises, Inc. not only sympathizes with the many facets of industry affected by the economic crisis, we are facing our own challenges in many ways.

However, we can help offset a portion of the rising food costs to a degree that can improve the condition of the frozen food supply chain. As an active member of this supply chain, our advantage is realized by a wide variety of features that make our facility environmentally sustainable, and have earned us a LEED gold rating. The most important of these features is a 1.5 acre array of solar panels on our roof, which allows us to provide about 75% of our own power consumption.

This in turn enables Innovative Cold to offer an unprecedented level of low cold storage costs. We are consistently the least expensive cold storage facility of our type in the industry, and our location in San Diego means that we are also ideal for inbound and outbound traffic between USA and Mexico.

If you are a supplier to the food industry, and are being affected by the rising food and fuel costs currently plaguing the economy, it would be advantageous for you to inquire about our services and rates. We are currently in the position to extend even more affordable pricing, which can potentially save a significant amount in logistics. This will help to offset your rising costs, allow you to keep a competitive edge, and ultimately soften the blow that affects the consumer of your product, who is already facing sufficient economic challenges.

The historical data on economic cycles indicates that the general economy will not remain in a downturn. However, we are at a point during which many struggling companies may not survive long enough to make it into better times. Any financial advantage that can be gained during any point in a company's operational procedures should be seized and utilized. Innovative Cold Storage Enterprises can offer that advantage for companies requiring cold storage. Like so many other situations that require unity for survival, if we work together in a sound, environmentally responsible way, we can not only avoid some of the inevitable shrinkage affecting so many industries, we can grow.


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