Food Prices Haven’t Eaten Up So Much of Your Money in 30 Years — What To Expect This Year
Inflation remains sticky and food prices continue to be high, still hitting Americans’ wallets at the grocery store and in restaurants.
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The latest consumer price index (CPI) data, released March 12, showed that while the food index remained unchanged in February, the food away from home index rose 0.1%.
Still, prices for food at home — your grocery bill — are up 2.2% for the year. And in terms of food away from home — what you pay in restaurants — the index is up 4.5% for the year.
To put this in context, while food prices remain elevated, the rate of increase remains a far cry from where it stood in August 2022, when groceries were up 13.5%, according to Bureau of Labor Statistics (BLS) data.
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A Silver Lining: Eggs Finally Seeing a Decrease
In terms of specific items, cereals and bakery products were among those which saw a price increase (+1.7%), as well as fruits and vegetables (+0.8%). On the other hand, the price of eggs — which became a symbol of pandemic-fueled inflation — continued to decrease, down a whopping 17% for the year and 1.45% for the month, BLS data showed.
Almost Impossible To Avoid Food Inflation
Rising food prices eat into the typical consumer’s budget, as it’s much easier to economize on non-food purchases, said William J. Luther, director of the American Institute for Economic Research’s Sound Money Project.
“You can stream Netflix instead of going to the cinema. You can put on a sweater and turn the thermostat down to save on heating expenses. But you still have to eat,” he said. “Switching from ribeyes to London broils or beef to chicken will save you a bit. But the prices of those lower-quality goods have risen, too. There is only so much you can do to save on food expenses.”
Yet, Luther also noted some mildly good news: Food price inflation has slowed. As general inflation continues to normalize over the next year, we can expect food prices to grow at more typical rates, he indicated.
Overall, CPI’s all-items index came in hotter than expected, showing a 3.2% price increase year-over-year across the board. This followed a 3.1% YoY price increase measured in January, and was also higher compared to the 3.1% rate of yearly inflation expected from Wall Street Journal economists. It is also still higher than the Federal Reserve’s 2% goal.
What To Expect in 2024 Regarding Food Prices
The U.S. Department of Agriculture (USDA) indicated it expects overall food price inflation to slightly decelerate in 2024. In 2024, all food prices are predicted to increase 2.9%, while food away from home prices are predicted to increase 5%, according to its Food Price 2024 outlook.
Food makes up nearly 15% of the “basket” of goods that go into the CPI measurement. In other words, U.S. consumers, on average, spend 15% of their after-tax income on food, explained Moody’s Analytics economist Matt Colyar.
“That is a major category. Grocery prices have moderated, which has helped, but dining out has become increasingly expensive,” he said. Colyar added that largely, the difference between groceries and restaurants is owed to the bigger role that labor plays in the latter.
“The tight labor market means increased pay. While grocery stores certainly employ people, the pass-through effect is greater at restaurants. This has definitely squeezed household budgets, but the worst appears over,” he added.
Indeed, according to him, food prices should continue to moderate as the labor market slowly loosens and wages in the food industry no longer put the immense upward pressure on prices they once were.
Yet, he also noted that there are downside risks, such as disruption to commercial cargo via geopolitical conflict.
“A spike in energy prices, a hugely important input for food production and distribution, could also cause a reacceleration in food inflation, though this is unlikely to be a sustained trend,” he said.
Consumer Pushback To Continue
Oliver Rust, head of product at economic data provider Truflation, said he expects to see consumers continue to push back on food inflation as they look for better price alternatives. They might continue choosing to purchase store-brand items over national brands, purchase items on promotion, or even switch to discount stores to save on their groceries.
In turn, he said, this pushback is affecting the prices at retailers, leading to more promotions and discounts.
“Manufacturers have also seen this trend. For example, Unilever — which produces foods like Hellman’s mayonnaise and Ben & Jerry’s ice cream, alongside household items — only increased prices by 2.8% in 2023 compared to 13.3% in 2022,” he said. “Other manufacturers like General Mills and PepsiCo are following a similar trend. That’s not to say that food prices are returning to pre-pandemic levels, but the cost of some items, like eggs, apples, and milk, is already below their respective peaks.”
And in terms of food away from home, establishments are also acknowledging that consumers are looking for savings.
“For instance, McDonald’s reports fewer visits from consumers with incomes below $45,000 and a trend of buying lower-priced items when they do visit,” Rust added.
According to him, this consumer pressure will continue to offset price increases.
“However, we have been seeing a rise in commodity prices, such as sugar and most recently cocoa, combined with geopolitical risks driving the price of oil higher. These volatile elements make food prices difficult to predict with any degree of certainty,” he concluded.
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This article originally appeared on GOBankingRates.com: Food Prices Haven’t Eaten Up So Much of Your Money in 30 Years — What To Expect This Year