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Supermarkets May Sneak in Price Increases

A surprise jump in wholesale food prices in September is bad news for producers and retailers, but you won't feel it in your wallet. Yet.

Producer prices — the amount farmers receive for their goods from manufacturers — rose by 6.9% compared to September 2010 or 0.8% on the month, the U.S. Labor Department said Tuesday. Wholesale prices — those paid by retailers — increased by an annual 2.5%; the biggest rise since June 2009. Worse, higher food prices aren't limited to a particular food group. U.S. wholesale prices rose across the board due to the rise in energy costs and commodities like grain and coffee. Fresh and dry vegetable prices soared by 10% on the year last month; beef and veal prices rose by 5.4%.

Analysts say supermarkets will start passing price increases onto consumers slowly and quietly. "Most retailers have been reluctant to raise prices up until now and have eaten up the higher raw material costs," says Michael Keara, an equity analyst for Morningstar. "But they will start." Although food commodity prices have been climbing steadily this year, grocery stores have held off because they don't want to scare price-sensitive customers. However, expect to see supermarket prices edging up in six to nine months, he says.

Consumers watching their wallets may also want to keep a closer eye on package sizes for their favorite foods. Keara says the jumps in wholesale and producer costs are so high that manufacturers are likely to cut quantity as a way of disguising price hikes. In other words, start making a note of how many ounces you get in your six-pack of your favorite granola bars. "They don't want to shock consumers," he says, noting that increases over 5% hurts sales volumes.

Shopping experts are already advising consumers to stock up, track expiration dates and freeze perishables. "Shoppers are shopping less frequently, twice per month," says Nick Dellis, a spokesman for online grocery list site Ziplist.com. Stephanie Nelson, founder of CouponMom.com, which advises consumers on the best coupon-clipping strategies and deals, suggests buying chicken at the end of its two-week sale cycle and freezes it. Buying chicken at $2 a pound or half price saves her $450 a year.

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