By Matt Andrejczak

SAN FRANCISCO (Dow Jones) -- Grocery-store food prices jumped 6.6% in 2008, the largest annual spike since 1980, the Labor Department said Friday.

By food category, prices for cereal and baked goods hit consumers the hardest, rising 11.7% over 2007, followed by prices for meats, poultry, fish and eggs, which gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products advanced 2.7% in price.

It was the second straight year shoppers paid a heftier price for a bag of groceries. In 2007, food prices at supermarkets rose 5.6% over 2006, a year when prices rose a meager 1.4%.

In 2008, food makers battled the largest spike in commodities they've ever faced, walloped by duel increases in key food ingredients and fuel, which all marched to historic highs in July. This took a beating on Pilgrim's Pride (PPC). The No. 1 U.S. chicken producer went bankrupt Dec. 1.

Some relief -- for shoppers and food makers -- is on the way. Corn, wheat and energy prices have tumbled since last summer, leading research analysts to believe price inflation will ease this year. Evidence of that has surfaced in recent months. Price inflation at the grocery store has been inching down since prices peaked in September, according to Labor Dept. data.

Still, Kellogg Co., maker of cereals Frosted Flakes and Rice Krispies, plans to lift prices Jan. 18 in the "low-to-mid single digit" range to help cover commodity costs for its cereal brands. It won't increase prices for its All-Bran and Special K brands.

It also will boost the price for a box of Pop-Tarts.

Kellogg (K) explained that it is raising prices because it sets pricing behind increases or decreases in the value of the commodities it uses. A spokeswoman said a 2008 price hike didn't help the company recover all its manufacturing costs.

In a research note, analyst David Palmer at UBS said Kellogg's price hike will likely be matched by competitors and private-label cereal manufacturers. On Friday, he upgraded Kellogg's shares to a buy, from hold.

A spokeswoman for General Mills, Kellogg's top cereal rival, said General Mills (GIS) does not comment on pricing actions it may or may not take. Ralcorp Holdings (RAH@), which sells Honey Bunches of Oats and Raisin Bran, increased prices last year.

Grocery-store operators are eager to push back on price increases instigated by food producers.

Supervalu Inc. (SVU) and A&P Supermarkets (GAP) have said they plan to negotiate lower prices with food suppliers, while Weis Markets (WMK) has instituted a price freeze through April 1 on 2,400 items it sells in 155 stores in Pennsylvania, Maryland, New Jersey, New York and West Virginia.

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