Food prices are on the rise in the U.S.

WASHINGTON – Food prices are on the rise.

The prices for milk, chicken, coffee and beef are up, says CBS business analyst Jill Schlesinger.

The drought in Brazil is affecting coffee prices and drought in the U.S. has pushed up cattle feed prices.

Food prices could rise as much as 3.5 percent this year, Schlesinger says.

During the last year, food prices increased 1.4 percent. Food prices rose just 0.4 percent in February, according to the most recent Consumer Price Index released Tuesday.

“If you’re spending more on your daily dose of coffee, you may spend less money elsewhere in the economy. And I think that is a real concern,” Schlesinger says.

Restaurants have absorbed past food price increases. But its not clear whether restaurants can absorb the full cost of those increases this time around, Schlesinger says.

Because wages are stuck at 1995 levels, when inflation is factored in, that could mean that inflation will rise, she says.

“I think inflation is going to start to rise. You can’t have these kinds of pressures in the economy and have such low interest rates for so long without seeing a pick up in inflation. And the weird thing is, that’s what the Fed wants,” she says.

The Federal Reserve has held interest rates at record lows in order to give a boost to the economy and avoid deflation. The fed wants inflation to hit 2 percent however it is has dropped to 1.1 percent.

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