Business Update with Mark Lacter

High food prices and a growing economy

KPCC business analyst Mark Lacter talks about high food prices; he also talks about how Southern California's economy is moving up the ranks.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Gas prices are up - way up. Food prices are up, too, Mark - I doubt there's a correlation, but for how long do you see grocery prices remaining higher?

Mark Lacter: Actually, there is a connection that I’ll get to in a second, Steve. But first off let's talk yellow squash. A few weeks ago I was paying $1.79 a pound at my local supermarket, then all of a sudden it was up to $3.99 a pound (which is a mere 122 percent increase by my calculations), and now it's back down to $2.99, which is still crazy high. And that's how it's been with fresh vegetables - even in California and even in early spring. And you can see these high prices reflected in the latest L.A.-area Consumer Price Index, which rose 2.3 percent over the past 12 months (food prices were up 3 percent overall, though as you can see with my squash example, the increases were especially high for fresh vegetables).

Julian: Is it the result of bad weather?

Lacter: That’s part of it - in places like Mexico and Florida. But it’s also about high fuel prices, which cause transportation costs to skyrocket. Certainly, there's bound to be concern about inflation picking up speed, which is about the last thing that the economy needs right now. You pay higher prices for basic items like food you're less likely to be spending for more discretionary items.

Julian: So is inflation a problem?

Lacter: Well, a little perspective is in order. Americans spend only about 15 percent of their budgets on food, compared with some of the developing countries, where the percentage is closer to 50 percent. Also keep in mind that many of the higher costs have not been passed onto consumers - and in any event, prices on many of those fruits and vegetables will start falling with the summer season approaching, especially in California. Now, prices for commodities like wheat, corn, and sugar have been heading higher for some time - much of that the result of higher demand in other parts of the world. That’s why we can expect to keep paying so much for bread and meat and milk. So, yes, there are hints of inflation, but certainly nothing to be alarmed over.

Julian: Southern California's economy is moving up the ranks, I see.

Lacter: Yeah, I realize that's hard to believe, what with the unemployment rate still in the 12-13 percent range, and housing prices pretty much hovering just a little above their recession lows. But those are just two ways of measuring the economy. The Brookings Institution has just come out with a report of the 100 largest metro areas in the country, and out of five groups (one being best, five being worst) it ranks the L.A. area in the middle, at number three, along with cities like Houston, San Jose, and Omaha, Nebraska - cities that generally have much lower unemployment rates and somewhat better real estate markets.

Julian: So why is L.A. included?

Lacter: Because they also looked at the amount of overall growth in the economy (kind of what the government does on a national basis), and they found that L.A. area had shown noticeable improvement. This seems to suggest is that the local economy has, at least to some degree, separated itself from the problems of housing and unemployment. And it really makes sense, if you consider the increase in container traffic out of the ports, the pick-up in location shooting for movies and TV shows, and the number of public works projects that have created thousands of construction jobs (some of those with the help of the federal stimulus). Now, that's not to suggest that a high level of unemployment and a generally lousy housing market are acceptable long-term. But these numbers are a reminder that Southern California is indeed in recovery mode from the recession – it’s just in fits and starts.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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