FORTUNE — In an unusual move, the U.S. Federal Reserve last week signaled it would put its focus on jobs ahead of inflation next year by buying up billions of dollars worth of bonds until the unemployment rate falls to at least 6.5%. The central bank’s announcement was a relief for the jobless, as the employment picture has failed to improve much since the Great Recession formally ended more than three years ago.
But while the Fed moves on with its bond bonanza assuming rapidly rising prices won’t be a problem, or at least not any time soon, it will be hard to convince shoppers at the grocery aisle.
Next year, officials plan to purchase $85 billion of mortgage-backed securities and Treasury securities each month, part of a continuing drive to push down long-term interest rates to boost borrowing, spending and investing. What’s unexpected is that, for the first time, the Fed disclosed an unemployment rate it wants to reach before letting short-term interest rates rise again.
What this means is that the Fed’s other job — controlling inflation — will take a backseat. The central bank generally likes to keep inflation below 2%, but last Wednesday policymakers indicated consumers might have to briefly live with prices rising a tad higher. If unemployment stays too high, officials said they were willing to tolerate inflation of up to 2.5% for a short period as long as it remains close to 2% in the long run.
It’s true overall inflation has been mild thanks in part to lower prices across gas stations nationwide. The seasonally adjusted Consumer Price Index dropped 0.3% in November from October, the Labor Department reported Friday. This comes as gas prices saw the biggest drop in nearly four years, falling 7.4%, during the same period.
Food prices are telling a different story, however.
On average, Americans spend 8.6% of their income on groceries and an additional 5.7% on food at restaurants, delis and the like, according to an NPR survey released in April based on 2011 data. That share could surely rise higher if incomes stay flat, since the nation’s worst drought since the 1950s is starting to result in higher food prices. The producer price index, which tracks how much wholsesalers pay for goods, fell 0.8% in November. However, the price for food rose 1.3% — the biggest increase since February 2011, according to a report released Thursday by the Labor Department.
Producer food prices are up 2.6% from a year earlier, compared with an annual gain of just 1.5% for all goods. In particular, chicken prices have surged 14.3% during the last year and wholesale beef and veal prices rose 8.2% in November, the biggest monthly gain since 2008.
For months, the US Department of Agriculture has warned about higher food prices. Next year, U.S. consumers may pay 3% to 4% more for food, the agency forecasts. The price of beef may rise as much as 5% amid tighter supplies of corn, which is used to feed cattle. Since June, the price of grain, the country’s biggest crop, rose by more than 50%.
All this could make it harder for the central bank to assure consumers that inflation isn’t a problem. When the Fed looks at signs for rapidly rising prices, it turns to a variety of measures — most commonly core inflation, which excludes the costs of fuel and food. This is for good reason, since officials make decisions based on what they think will happen in the long run. Fuel and food prices tend to rise and fall pretty dramatically.
In the end, consumers may have to endure the pain, if only briefly, of paying more next year at the grocery store. Let’s hope the jobless rate improves at the same time.