Everything in your budget is going up except for your paycheck, or at least that's how it feels. Anybody who took a business class in high school or college probably learned about inflation and the many ways in which economic changes can increase our grocery bills, but it wasn't until adulthood that we learned the real effects inflation has on our lives. The current rate of inflation sits at 1.7%, but the historical average is closer to 3%. This means that everything you purchase should rise about 3% every year, but some of your regular purchases may rise even more when others factors are considered.

Corn
Even if you're not heading to the produce aisle and buying ears of corn each week, you're likely unaware of how many products in your cart are made with corn. Corn hit a 2012 high of $7.13 per bushel in early July because of a drought in corn-growing regions of the United States. This may cause already high prices to soar even higher. If you routinely purchase these grocery items, higher corn prices along with general inflation might affect your wallet.

Livestock
The primary ingredient in livestock feed is corn. When farmers have to pay more to feed the animals that produce our meat, the price of the product rises. Farmers may reduce the amount of livestock to cut down on feeding costs or market prices may adjust to account for the higher cost of raising the livestock. Regardless of how, an increase in the price of corn will most likely increase the price of livestock.

SEE: 5 Easy Ways To Save On Groceries

Soft Drinks
In the first quarter of 2012, Dr. Pepper Snapple reported that its revenue increased 2%, but its profit fell 11% due to rising commodity prices. One of those commodities is corn. Corn produces corn syrup, a sweetener found in soft drinks and many other processed foods. As the price of corn rises, the cost to produce corn syrup rises with it. Although corn syrup has received a lot of bad press in recent years due to its questionable effects on a person's health, it remains an ingredient in many processed foods.

Mexican Food
The two staples of Mexican food are corn and beans. Corn is not only used in its unprocessed form as a vegetable in Mexican cuisine, but corn is made in to masa, the dough that makes tortillas, gorditas, tamales and corn chips. In 2007, a rise in corn prices caused the price of tortillas to double in Mexico causing the government to implement price controls. Foods needed to make Mexican cuisine may not double, but they're likely to rise in price as Mexican cuisine finds increasing popularity in the United States.

SEE: How Buying Groceries In Bulk Will De-Bulk Your Checking Account

Cereal
If you love your Corn Flakes, Kix, Corn Chex or any of the other cereals made primarily from corn, you may have to pay more for these breakfast delights in the near future. Even if your favorite cereal doesn't have "corn" in the title, it's likely that it contains corn. Remember corn syrup? Whether they are specifically made from corn or not, many cereals list it as an ingredient.

Popcorn
Don't forget about a favorite snack during movies, or even for those who are dieting. Some species of corn are now grown specifically for popping. Regardless of the type of corn, drought-stricken areas may have an impact on the amount of corn available to make popcorn.

The Bottom Line
Some believe that it won't take much to see our groceries go up in price this summer. Even something as small as the rising price of corn can do the job. With corn hitting a year-high this past month, consumers shouldn't be surprised to find many of their favorite grocery items rise in price, too. Welcome to the effects of inflation.

Related Articles
  1. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  2. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  3. Stock Analysis

    The Best Stocks to Buy for Less than $10 before Year End

    Learn about the best stocks to buy under $10. These stocks are speculative but have considerable upside given their valuation and market conditions.
  4. Investing Basics

    10 Companies That Yuppies Love

    Learn about 10 companies loved by the modern Yuppie, including how this demographic's impressive buying power has boosted these companies' earnings.
  5. Markets

    Trader Joe's Stock Doesn’t Exist. Here’s Why

    Learn about Trader Joe's and how it operates. Understand why Trader Joe's has chosen not to be a public company and why it should remain that way.
  6. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  7. Savings

    6 Ways to Save Money on College Supplies

    Tuition and room and board are big expenses, yes, but the cost of textbooks and supplies can add up, too, unless you strategize.
  8. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  9. Stock Analysis

    Is the Apple Watch a Real Threat to Fitbit?

    Examine the potential for marketplace competition between Fitbit and the Apple Watch in the rapidly growing consumer wearables industry.
  10. Professionals

    Why the Wealthy Shy Away from Inheritance Talk

    A recent survey of high-net-worth individuals shows that many avoid talking inheritance with children. Here are some ways to balance the sensitive topic.
RELATED TERMS
  1. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  2. Duty Free

    Goods that international travelers can purchase without paying ...
  3. Negative Option Deals

    A dubious business practice that involves supplying a typically ...
  4. G.19 Report

    A monthly statistical report from the U.S. Federal Reserve that ...
  5. Drip Pricing

    A pricing technique in which only part of a product or service’s ...
  6. Behavioral Modeling

    Using available and relevant consumer and business spending data ...
RELATED FAQS
  1. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  4. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  5. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  6. How do changes in interest rates affect the spending habits in the economy?

    Changes in interest rates can have different effects on consumer spending habits depending on a number of factors, including ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!