The United States is headed for the fifth year in a row of lower-than-average increases in grocery prices, part of a longer trend of smaller and less volatile changes in food inflation, said two USDA economists who examined recent data on retail food prices. “This downward trend may continue in the near future,” they said.
“While grocery store prices can be volatile year to year, the average rate of inflation for food at home has been slowly declining,” wrote Annemarie Kuhns and Abigail Okrent in an Economic Research Service report released a couple of days before the USDA updated its food inflation forecast on Thursday. The forecast is unchanged: a nearly imperceptible increase of 1 percent this year.
That’s half of the moving 20-year average for food inflation, said Kuhns and Okrent. A decade ago, the 20-year average was 3.1 percent, and in 1998, the moving average was 4 percent. Inflation rates have also declined for other sectors of the economy, such as housing, apparel, and medical care, since the late 1990s.
In 2016 and 2017, grocery prices actually declined, the first instances of food deflation since 1967. The major deflationary factors in that two-year period were increased farm production, lower costs for food production and transportation, and the strong dollar, which effectively reduced the cost of imported foods and discouraged the exporting of domestically grown food, said the ERS report. “The food industry may have also become more competitive during this period, though evidence of this is inconclusive.”
At the same time that grocery prices have held steady, the cost of food away from home — the category for restaurant, carryout, and institutional dining — has ticked upward by 2 percent or more per year.
“Will more households shift from purchasing more meals away from home to purchasing more meals for at-home consumption?” asked the economists in discussing the implications of flat grocery prices. “The cost structure at a restaurant is more heavily tied to wages and other overhead costs associated with food service, as opposed to raw food prices.” Kuhns and Okrent said retailers are offering more and more foods for in-store dining and prepared foods for takeout.
“In 2019, price growth may continue to remain low at the grocery store,” said the ERS’s Food Price Outlook, released on Thursday. “Several products could continue to see lower prices, including pork, other meats, eggs, fats and oils, and processed fruits and vegetables. Price increases are expected for beef, poultry, seafood, and sugar but at rates below the 20-year average. Dairy, cereal, and bakery prices are forecast to rise faster than average.”
Groceries are the third-largest consumer-spending category, behind housing and transportation, and account for 12.6 percent of spending. Red meat, poultry, and fish account for 21 cents of every $1 spent on groceries.
To read the USDA report, “Factors impacting grocery store deflation,” click here.