Food Price Outlook, 2013-14
This page provides the following information for February 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.4 percent from January to February and is 1.1 percent above the February 2013 level. The CPI for all food increased 0.3 percent from January to February, increased 0.4 percent from December 2013 to January 2014, and is now 1.4 percent above the February 2013 level.
- The food-at-home (grocery store food items) CPI was up 0.3 percent in February and is up 0.9 percent from last February. The food-at-home CPI increased 0.9 percent from 2012 to 2013—one of the smallest year-over-year increases in decades; and
- The food-away-from-home (restaurant purchases) CPI increased 0.3 percent in February and is up 2.2 percent from last February.
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 lingering commodity price effects from the severe 2012 drought in the Midwest, retail food prices were flat in 2013. Several agricultural commodity prices, particularly sugar and coffee, decreased in 2013. Fuel prices were moderate, and exports decreased for several major U.S. commodities. Relative to 2012, prices rose considerably for poultry, eggs, fish, and fresh vegetables; however, prices fell for nonalcoholic beverages, sugar and sweets, fats and oils, and other meats. For the remaining food categories, prices were mostly unchanged. From February to December 2013, average supermarket prices fell by 0.2 percent.
Looking ahead to 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm. The food-at-home CPI has already increased more in the first two months of 2014 than it did in all of 2013, but given its current trajectory, it is on track for normal annual inflation. Since 1990, grocery store prices have risen by an average of 2.8 percent per year. Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. Retailer margins, having contracted since the drought, may expand in 2014 if input prices rise, which should contribute to inflation. The food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels. This forecast is 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 potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices.
Changes to Food Category CPI Forecasts
Eggs continued their recent surge, increasing 0.7 percent from January to February. The CPI for eggs is now 5.7 percent above the February 2013 level. ERS has revised the forecast for egg prices upward to 3.0 to 4.0 percent in anticipation of increased exports as well as strong domestic demand (due in part to high meat prices) in 2014.
See Changes in Food Price Indexes, 2012 through 2014 .
Key Month-Over-Month Changes in the Food CPI
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures. In the past month, the food-at-home CPI increased by 0.3 percent; this indicates that prices in many food categories rose. Beef and veal prices, which are already at or near record levels across the country, rose 4 percent in February and are up 5.4 percent over this time last year. As the largest monthly increase in beef prices since November 2003, this reflects, in part, an increase in exports, a decrease in imports, and further reductions in the U.S. cattle inventory. Meat prices, on average, increased 1.7 percent in February and are up 3.6 percent from February 2013.
Milk prices, which have been rising since the end of 2013, increased 0.5 percent in February and are up 2.5 percent since last year. The Dairy CPI, while still up 0.6 percent from this time last year, is expected to experience accelerated inflation in the coming months.
The other foods category, which includes many processed, shelf-stable foods and accounts for 12 percent of consumer food expenditures, rose 0.7 percent in February and is up 0.9 percent since last February. Prices for this category were flat in 2013 but are expected to increase 2.0 to 3.0 percent in 2014 as retailers recover their profit margins, which had contracted in 2012 and 2013.
Due to ongoing drought conditions in California, produce prices have recently come under a great deal of scrutiny. Fresh vegetable prices, however, fell 0.8 percent from January to February and are down 3 percent from this time last year. Fresh fruit prices increased 0.8 percent in February and are down 1.6 percent from February 2013. The increase in fruit prices was led by a 4.4-percent increase in apple prices. California is not a major apple-growing State; hence, the California drought has not yet had a discernible impact on national prices for fruit or vegetables.
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 supply 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 increase of 1.1 percent from January to February, and intermediate foods and feeds posted a monthly increase of 0.9 percent. Finished consumer foods were up 0.4 percent from January to February. This is the second consecutive month that all three indices trended upward, suggesting that retail food price inflation will continue in the coming months and be stronger than it was in the last quarter of 2013.
Farm egg prices increased 19.6 percent in February, after falling 28.1 percent in January, underscoring the high volatility of this food category. Farm eggs prices are up 23.5 percent from February 2013. Farm milk prices increased 6.5 percent in February, extending their recent upward trend, most likely due to contraction in the U.S. dairy herd. Wholesale dairy prices also rose 4.1 percent from January to February. These increases can be expected to register in the Dairy CPI as soon as next month, but retail prices for cheese, ice cream, and other processed foods may take months to show any effect from dairy herd cpntraction. Both farm cattle and wholesale beef prices rose on the month, with cattle increasing by 1.1 percent and beef increasing by 2.4 percent. While not unusually large, these changes indicate that the record-high supermarket beef prices across the country are here to stay for the coming months.
See Changes in Producer Price Indexes, 2012 through 2014 .