Pain in the pocketbook

NEW YORK (CNNMoney.com) -- As anyone who's been to the gas station or supermarket lately knows, the prices of fuel and food are on the rise.

And you haven't seen anything yet, some experts say.

Gasoline now costs an average of $3.15 a gallon, seven cents shy of the record set last May, according to AAA.

But with crude oil prices setting a new trading high of $102.08 a barrel on Wednesday, it's only a matter of time before drivers see it hit another record at the pump.

Within a few weeks, gas could cost $3.50 a gallon and, by spring, the price could hit $4 in some locations, said Peter Beutel, an oil analyst at the consultancy Cameron Hanover.

The high cost of gas is helping fuel a surge in food prices. Higher transportation expenses, along with growing demand for agricultural exports from the United States and increasing need for corn-based ethanol for gas supplies, has sent commodity costs soaring.

Last week, the federal government reported that the Consumer Price Index rose a greater-than-expected 0.4% in January and 4.3% over the past 12 months, mainly because of higher food and energy costs. Food and beverages jumped 4.8% for the year and transportation soared 9.4%.

A bushel of yellow corn, for instance, cost an average of $5.12 in January, up 41% from a year earlier, according to U.S. Department of Agriculture statistics. Not only does this contribute to the higher prices of food made from corn, but it increases farmers' cost of feeding cattle and pigs.

Though prices have been climbing for the last few years, consumers didn't feel it as much in the past because their home values were soaring.

"But now, with housing prices having gone down, credit becoming tighter and prices of necessities like food and energy going up sharply, it's created quite a squeeze on consumers' disposable income," said Maria Fiorini Ramirez, head of economic consulting firm MFR Inc.

The surge in gas prices has forced Kenny Khan to cut back his weekly 100-mile visits to his sister in Cherry Hill, N.J., to once a month.

"It costs me $50 in gas to visit her, said Khan, 52, who lives in Teaneck, N.J., and manages a gas station in midtown Manhattan. "As a salaried consumer, I can't afford that much for recreation."

Economists fear a continued slowdown in consumer spending will further weaken the economy.

The Federal Reserve's rate cuts won't lessen this inflation, said food price expert John Norris, managing director at Oakworth Capital Bank. As long as the dollar remains weak, the global demand for American exports will remain high.

"Consumers should build into their budgets continued increases," Norris said.

Later in the year, however, oil prices could ease since supplies from both OPEC and non-OPEC sources are expected to increase, said Sara Banaszak, senior economist at the American Petroleum Institute.

Staff Writers Catherine Clifford and Steve Hargreaves contributed to this report.

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