Be it a bushel of wheat from Kansas, a ton of rice from India or a barrel of crude from Saudi Arabia, prices for all manner of commodities are on the rise across the globe, a trend that is starting to pinch American consumers.
On Tuesday prices of many raw materials continued to surge, with gold, cotton and sugar reaching record highs. A closely watched index of 19 major commodities closed at a two-year high, despite a late-day sell-off in gold and oil.
The effects are rippling from financial trading floors to local stores, forcing consumers to shell out more for everyday basics — a cup of coffee, a box of cereal, a gallon of gasoline.
Those increases are being driven in part by short supplies of some crops and raw materials caused by poor weather in major producing regions and robust demand from emerging markets such as China and India.
Investors and speculators also are pushing up prices as they jump into rising commodity markets. They are being drawn to these so-called hard assets to hedge against inflation and the risk of further devaluation of the dollar and other paper currencies.
But that fear of inflation could ultimately be the fuel that feeds it, analysts warned.
"Billions of dollars are moving into oil, and then it becomes a self-fulfilling prophecy," said Tom Kloza, chief oil analyst for the Oil Price Information Service.
Crude oil prices are up 9% this year to nearly $87 a barrel. Fuel costs directly affect what consumers pay for food.
Take breakfast. This year alone, raw coffee prices on commodity exchanges are up 60%. Corn and soybeans, the basic feed for hogs and cattle, have risen 39% and 26%, respectively. Wheat, a dietary staple for many cultures, is up 33%, and sugar is up 23%.
Even napkins and tablecloths to set the table have grown more expensive to make: Cotton prices have leapt 100% this year, to $1.51 a pound, a high not seen in this country since the Civil War.
This latest run-up in commodities, which began in late August, so far has boosted prices only modestly for consumers. But next year the impact could be far more serious, particularly if harvests for major crops are poor, Wall Street and agricultural analysts warned.
Retail food prices have already started to rise after remaining relatively flat for the first half of the year, said Ephraim Leibtag, an economist with U.S. Department of Agriculture's Economic Research Service.
The agency forecasts that overall inflation for food prices, projected at 0.5% to 1.5% this year, in 2011 will range from 2% to 3%. "But some segments — such as dairy and meat — will be higher than that," Leibtag said.
Now a wide swath of American businesses face a tough task: figuring out how much, if at all, they can raise their prices without scaring off customers in a still-struggling economy.
General Mills Inc., citing higher costs for grain and other ingredients, is raising prices on some of its breakfast cereals this month and some baking products in January. Kraft Foods Inc. said during a call with analysts last week that it had raised or planned to raise prices on about 40% of its products sold in the U.S., including coffee and cheese.
Starbucks said it would charge more for some its larger drinks because the cost of its coffee beans is skyrocketing.
Rival Peet's Coffee & Tea Inc. already has jacked up prices, blaming the run-up in raw coffee. In September, the Emeryville, Calif.-based chain tacked on 10 cents to the price of most of its drinks and 8% to the price of bagged beans sold in its stores.
Citing cotton costs, apparel makers Jones Group Inc., Hanesbrands Inc. and VF Corp. have said they expect to boost clothing prices by as much as 10% early next year.
Still, raw material costs often represent only a small portion of the final retail price of a product, compared with labor, marketing and transportation. And it's unclear whether most manufacturers and retailers — particularly big-box stores such as Wal-Mart Stores Inc. — will risk alienating shoppers by raising their prices significantly.
But some corporate leaders are clear about their intentions.
"The reality is, costs are going up for everyone," Irene Rosenfeld, chief executive of Kraft Foods, told analysts during a quarterly earnings call last week.
Beverly Shafer agrees. The co-owner of Schooner or Later, a popular diner in Long Beach, has watched her supply bills grow by hundreds of dollars a month. Her coffee vendor raised prices 30 cents a pound in October — then announced another 30-cent hike this month.
Her bacon prices have jumped to $77 per box from $47.
"Do you have any idea how much bacon and coffee we go through?" Shafer said. "We've tried not to raise our prices, but we have no choice. We're going to have to do it. Prices have to go up across the board on our menu. We can't keep up."
But even modest price increases are more than some strapped shoppers can bear.