Food Price Outlook, 2015-2016
This page provides the following information for August 2015:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.1 percent from July to August and is 0.2 percent higher than the August 2014 level. However, the CPI for all food rose 0.3 percent from July to August and is now 1.6 percent above the August 2014 level. The degree of food price inflation varies depending on whether the food was purchased for consumption away from home or at home.
- The food-away-from-home (restaurant purchases) CPI was up 0.2 percent in August and is 2.7 percent higher year-over-year; and
- The food-at-home (grocery store or supermarket food items) CPI rose 0.3 percent in August and is 0.8 percent higher than last August.
ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly. Despite the effects of the drought in the Southwest and California, retail food price inflation rates approached the 20-year historical average of 2.6 percent per year. In 2014, the food-at-home CPI increased 2.4 percent. While overall food price inflation was close to its 20-year historical average, inflation across food categories covered a broad spectrum. The most notable annual inflation was seen in the perimeter of the grocery store—retail beef and veal, pork, eggs, fish and seafood, dairy, and fresh fruit all experienced above-average price increases. Alternatively, items in the center aisles of grocery stores experienced below-average inflation or, in some instances, even deflation. In 2014, prices fell for fresh vegetables, sugars and sweets, and nonalcoholic beverages.
Looking ahead to 2015, ERS now predicts that supermarket (food-at-home) prices will see slightly-lower-than-average food price inflation, increasing 1.5 to 2.5 percent. However, food price inflation is expected to vary by category. Beef and veal prices are expected to continue to experience the effects of the Texas/Oklahoma drought. Farmers' decisions on calving and herd sizes will be felt down the line due to the 16- to 18-month production process. Egg prices are expected to rise from 12.5 to 13.5 percent due to the effect of Highly Pathogenic Avian Influenza (HPAI) on table-egg-laying flocks. In contrast, the effects of Porcine Epidemic Diarrhea virus (PEDv) on the hog industry are subsiding, and the hog industry has started to expand in 2015, resulting in a decrease in farm-level hog prices.
In 2016, ERS predicts supermarket prices to rise 2.0 to 3.0 percent—a rate of inflation that remains in line with the historical average. These forecasts are based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could have large and lasting effects on fruit, vegetable, dairy, and egg prices. Conversely, if oil prices continue to remain low throughout 2015 and 2016, subsequent decreases in production and transportation costs may be passed on to the retail level.
Changes to Food Category CPI Forecasts
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures.
Beef and veal prices decreased 0.6 percent from July to August but are still 5 percent higher year-over-year. Overall, cattle and wholesale beef prices have started to decline, as the U.S. cattle industry recovers from historically low levels and expands herd sizes. Recent rains in the Southern Plains and Southwest have improved pasture conditions in the short term; however, some areas in the Southern Plains continue to experience drought conditions. Favorable pasture conditions in some areas and lower feed prices have allowed cattle producers to feed cattle longer and to hold cattle for herd expansion. ERS predicts beef and veal prices will increase 5.5 to 6.5 percent in 2015 and 2.0 to 3.0 percent in 2016.
Prices for poultry declined by 0.5 percent from July to August and are 0.7 percent lower year-over-year. Partly due to an increase in broiler production, retail chicken price inflation has remained relatively low in 2015. While broilers have largely been unaffected by HPAI, broiler prices have been affected due to some countries instituting bans or partial bans on U.S. poultry exports. This has resulted in more chicken broilers remaining on the U.S. market which, in turn, places downward pressure on retail chicken prices. Chicken prices fell 0.4 percent from July to August and are 1.2 percent lower than they were at this time last year. ERS predicts poultry price inflation to continue near the historical average in 2015 and forecasts poultry prices to increase 1.5 to 2.5 percent in 2015. Poultry prices are expected to increase an additional 2.5 to 3.5 percent in 2016.
In August, prices for dairy products fell, decreasing 0.3 percent from the previous month and remaining 2.5 percent lower than they were in August 2014. Milk prices, in particular, have declined—down 1.1 percent from July to August and 7.2 percent since August 2014. Retail dairy prices have been falling in 2015, as the dairy market has seen declining exports and increasing imports, resulting in more dairy on the U.S. market. ERS now predicts dairy product prices to increase 0.5 to 1.5 percent in 2015 and 2.0 to 3.0 percent in 2016.
See Changes in Food Price Indexes, 2013 through 2016 .
Key Month-Over-Month Changes in the Food CPI
In August, pork prices rose, increasing 0.6 percent from the previous month, but prices have still fallen 8.1 percent year-over-year. In 2014, retail pork inflation was largely due to the effects of PEDv, which had reduced the autumn number of hogs ready for production. In 2015, however, hog prices are falling below 2014 figures, as there are signs of industry expansion and a lower volume of pork exports due to the strength of the U.S. dollar. ERS predicts pork prices to fall 4.0 to 3.0 percent in 2015. In 2016, pork prices are expected to rise 1.5 to 2.5 percent.
Egg prices increased 9.2 percent from July to August and are now 35.3 percent above August 2014 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. The recent upswing is mostly due to the HPAI outbreak, which has decreased the table-egg-laying flocks in the Midwest and Pacific Northwest. ERS forecasts egg prices to increase 12.5 to 13.5 percent in 2015 and 2.5 to 3.5 percent in 2016.
Prices for fats and oils increased 0.8 percent from July to August but are 1.9 percent lower than last August. The relatively low level of price inflation for fats and oils is primarily due to record-level oilseed production as well as increased import volume. ERS predicts fats and oils prices to increase -0.5 to 0.5 percent in 2015 and 1.5 to 2.5 percent in 2016.
Fresh fruit prices rose 2.4 percent from July to August but are 1.7 percent lower than in August 2014. Fresh fruit prices are lower year-over-year due, in part, to the supply and price of imports. ERS expects prices for fresh fruit to decrease -1.0 to 0.0 percent in 2015. Fresh vegetable prices also increased in August, rising 0.8 percent over July levels. Fresh vegetable prices are up 1.3 percent since August 2014, resulting in an expectation for prices to increase 0.0 to 1.0 percent in 2015. This is not to say that the drought has had no impact on fresh produce prices—other factors, such as the strength of the U.S. dollar and low oil prices, have placed downward pressure on retail fruit and vegetable prices.
Producer Price Index (PPI) for Food (not seasonally adjusted)
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time. However, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.
The stage-of-processing PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
ERS does not currently forecast industry-level PPIs for crude, intermediate, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Crude foods and feeds posted a monthly decrease of 0.9 percent from July to August. Prices for intermediate foods and feeds rose in August, increasing 0.3 percent. Prices for finished consumer foods also increased in August by 0.8 percent month-over-month. The recent price increases for commodities and foods at earlier stages of the food supply chain suggest that food prices at the retail level could continue to face upward pressure in the coming months.
Inflation rates for farm-level cattle and wholesale beef prices were high in 2014, as U.S. cattle herd sizes remain near historically low levels. Inflationary pressures have lessened, however, and farm-level cattle prices have started to deflate in 2015. In August, cattle prices increased 0.2 percent but are down 2.4 percent since this time last year. Wholesale beef prices also rose, climbing 1.9 percent on the month, and are now up 4 percent year-over-year. In 2015, ERS predicts farm-level cattle prices to rise 3.0 to 4.0 percent and wholesale beef prices to increase by 4.0 to 5.0 percent. As pasture and water conditions continue to improve in cattle-producing regions in the western half of the United States and feed prices remain low, more cattle have been reported on pasture lots. However, increases in beef production require time, as it takes roughly 16 to 18 months from birth until cattle are ready for market.
Wholesale pork prices increased 4.1 percent from July to August; prices are now down 29.6 percent since this time last year, as the effects of PEDv are subsiding. Overall, pork production is higher, as litter sizes and hog inventories have recovered. ERS predicts that wholesale pork prices will decrease 15.0 to 14.0 percent in 2015 but rise 1.0 to 2.0 percent in 2016.
Prices for farm-level eggs increased 36.1 percent from July to August; prices are now up 154.9 percent from August 2014 levels. Egg prices are among the most volatile of food prices, typically peaking in the fourth quarter of the year and then falling in the first quarter of the new year. Prices are also affected by HPAI, which has reduced the count of table-egg-laying birds in many Midwestern and Pacific Northwestern States. The recent increase at the farm-level indicates that retail egg prices could continue to rise over the next several months. ERS forecasts farm-level egg prices to increase 20.0 to 21.0 percent in 2015 and 10.0 to 11.0 percent in 2016.
Farm-level soybean prices declined 3.9 percent from July to August and are now 13.6 percent below the August 2014 level. Wholesale fats and oils prices also decreased on the month, falling 1 percent in August, and are now 5.1 percent lower than August 2014 levels. ERS predicts farm-level soybean prices to fall 14.0 to 13.0 percent in 2015. Prices for wholesale fats and oils are expected to decrease 1.0 to 0.0 percent in 2015.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Prices for both farm-level fruit and vegetables rose in August. Farm-level fruit prices increased 5.5 percent in August, and farm-level vegetable prices rose 2.3 percent—an indication that retail produce prices could continue to increase in the coming months. ERS now predicts farm-level fruit prices to decrease between 6.0 and 5.0 percent and vegetable prices to fall 5.0 to 4.0 percent in 2015. Prices are expected to rise in 2016—fresh fruits by 1.5 to 2.5 percent and fresh vegetables by 1.0 to 2.0 percent.
See Changes in Producer Price Indexes, 2013 through 2016 .