Egg prices blowing up because of avian flu

16-Jul-2015 - USA

eggs are getting much more expensive - by the dozen and otherwise. The outbreak of avian flu caused the cost of eggs to nearly double last month for producers. Wholesale prices for chicken eggs jumped 84.5 percent in June, the Labor Department said Wednesday.

The spike comes amid otherwise tame inflation across the rest of the economy. The producer price index, which measures the costs of goods and services before they reach consumers, increased 0.4 percent in June.

Over the past 12 months, producer prices have actually fallen 0.7 percent due to lower oil and gasoline costs. Wholesale gas prices rose 4.3 percent last month but are down 30.3 percent from a year ago, keeping inflation firmly in check.

A surprising amount of the increase in producer prices last month came from eggs, which make up an extremely small share of the broader index but have soared in price since April.

"When they're rising at a 58,000 percent annualized rate, as they have the past two months, the impact is material," said Ted Wieseman, an analyst at Morgan Stanley who estimates that eggs alone account for nearly a fifth of the total 0.4 percent increase in producer prices last month.

Wholesale chicken egg prices recorded the largest increase since the government began tracking the costs in 1937. More than 49 million chickens and turkeys died or were euthanized in 15 states this spring as the flu virus spread from the Pacific Northwest into Midwest farms.

The loss of those birds has cut into the supply of eggs, provoking a shortage that should begin to cause higher egg prices at grocery stores, Wieseman said.

Still, the producer price index showed that overall inflation remains mild. Core prices, which exclude energy and food, rose 0.3 percent in June.

Relatively cheap oil has limited inflation across much of the U.S. economy. The cost of Brent crude oil in the markets barely budged for much of June, after climbing at the start of May to nearly $68 a barrel.

Gasoline prices have stayed relatively flat so far in July, dropping to a national average of $2.78 a gallon from $2.80 a month ago, according to AAA. Average retail gas prices have fallen nearly 23 percent over the past 12 months.

Federal Reserve officials are monitoring measures of inflation as they weigh whether to raise a key short-term interest rate. They have kept the federal funds rate at a record low near zero for more than six years, making it cheaper to borrow, spend and invest in ways that aid economic growth.

Fed officials have said they want to be "reasonably confident" that inflation is headed toward their 2 percent target, which would signal a stronger economy.The Fed will meet for two days starting July 28 to consider interest rates. Still, most private economists believe that September will be the earliest that they will hike rates.

Analysts say the Fed wants assurance that the economy is strong enough to raise rates without disrupting growth. But even once the Fed starts raising rates, Fed Chair Janet Yellen and other officials have said that any increases will be gradual.

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds target," Yellen said in prepared remarks Wednesday before a congressional committee. (dpa)

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