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ERS regularly updates and provides food price forecasts for the
short-term period of 12 to 18 months. These forecasts are a composite
of formal model results and judgment. Monthly Bureau of Labor Statistics'
indexes for all food, food away from home, food at home, and 15
food at home categories are used in conjunction with ERS analysis
to adjust the current short-term forecasts for each of the food
categories. See ERS data on the CPI for food and CPI forecasts.
ERS food price forecasts are developed through a three-step process:
- First, USDA develops its 10-year baseline projections. The baseline provides long run projections for the agricultural sector and covers agricultural commodities, agricultural trade, and aggregate indicators of the sector, including farm income and food prices. The baseline projections are a conditional scenario with no shocks and are based on specific assumptions regarding the macroeconomy, agricultural policy, the weather, and international developments. In particular, the baseline incorporates provisions of the Farm Security and Rural Investment Act of 2002 (2002 Farm Act) and assumes that current farm legislation remains in effect through the projections period. For the actual projections, see the USDA Agricultural Baseline Projections Briefing Room.
- In the second step, ERS analysts develop the short-term forecasts that incorporate the most recent baseline assumptions and current information on market conditions and expectations, weather patterns, commodity prices and supplies, and expected consumer demand for specific foods.
- In the third step, these short-term forecasts are compared with a computer-based Autoregressive Integrated Moving Average (ARIMA) model that determines whether the ERS short-term forecast falls within an expected statistical range of a 95-percent confidence interval.
Food price forecasts developed using this three-step process are subject to revision if the conditions on which they are based should change significantly. Projections could be affected by changes, for example, in the feed grain crop outlook; in export markets, especially for meat items; in nonfarm markets; or in weather-related crop conditions in major fresh fruit and vegetable growing areas.
Historical data indicate that fresh fruits and vegetables and egg prices are the most volatile food prices that ERS tracks. Grain price changes affect the price of meats, poultry, eggs, and dairy products more than the prices of other food items and to a lesser extent cereals and bakery products. Because these items account for more than half of the at-home food dollar, price changes for these categories can significantly affect the Consumer Price Index (CPI) for food at home.
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