During periods of rising inflation, food prices tend to shoot up like rockets and come down like feathers. Food economists believe that will continue to be the case, keeping food prices from going down heading into the holidays and 2024.
Food inflation started to cool dramatically in 2023 and was up 2.4% year-over-year through September. That was down from an increase of 11.8% for all of 2022, Leslie Sarasin, president and CEO of FMI — The Food Industry Association, shared on a webinar Tuesday.
But even with food inflation cooling, grocery prices aren't expected to experience much relief.
“What we typically see is inflation cooling, rather than prices actually dropping,” explained Ricky Volpe, associate professor in California Polytechnic State University’s agribusiness department.
“When inflationary pressures start to abate, there’s not a rush to reduce those costs, understanding that even as the short-term spikes are abating, these cost pressures really aren’t going anywhere,” Volpe added.
The food-at-home category of the Consumer Price Index (CPI) goes up every year, representing nominal food price inflation that represents many things including wages, packaging costs and transportation.
The latest 2024 food price outlook projected prices in 2024 could fall as much as 5.5% or increase up to 7.8%, which Volpe said would be at or near historic extremes in deflation or inflation depending on where it lands in the wide range offered by USDA's Economic Research Service. The midpoint of those food price forecast projections — a 1% increase — would represent food price inflation that is significantly below the 20 to 25-year historical average.
Volpe said a 1% increase in 2024 would represent some “significant relief for customers and what they’re paying for food.”
In the last 60 years, the only time food price deflation occurred was in 2016, Volpe said. At the time, California’s drought was officially declared over, supply-side pressures were weakening and food-away-from-home spending saw a significant uptick, which drew back grocery demand that year, Volpe said.
Going into 2024, he doesn’t expect food deflation because grocery demand remains “red hot,” Volpe said. Although energy prices are down from their peak in July of last year and good news is coming out of the Black Sea region, solutions still do not exist for the structural issues related to labor and trucking that have been plaguing the food system, he added.
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According to FMI’s Grocery Shopper Trends, 31% of consumers are cooking from home more often to manage rising food costs, and half those surveyed said they plan to cook and eat more of their meals at home than away in the coming year.
FMI reported 20% of shoppers say they are actually buying more groceries as a way to contain their food spending, which helps explain why the average weekly grocery spend per household is currently $155/week. While that is higher than the $148/week shoppers were spending last October, FMI noted this is a decrease from the $164/week from February of this year.
Volpe does see some relief for grocery prices for some of the markets that have experienced extreme increases in recent years including pork, eggs and beef.
For beef, the story goes back to historical factors related to drought in the Western United States all the way back to the recession and financial crisis from 2007 to 2009. Cattle inventories have been at very low levels going back almost 15 years, and they are finally recovering with drought conditions improving and farm-gate price of alfalfa decreasing significantly, he said.
To the surprise of many, the value of the U.S. dollar remains strong in relation to food prices and food spending domestically.
“The U.S. food dollar today, or at least as of 2021-22, goes further than it did 20 years ago,” Volpe said.
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