U.S. food prices will rise by a marginal 1 percent this year, the second-smallest increase since 1974, and it’s all due to lower grocery prices, said a government forecast. Groceries, which are the bulk of food spending, would cost less this year than they did in 2015 — the first taste of price deflation at the supermarket since 1967.
In its monthly Food Price Index, the USDA estimated grocery prices would fall by 0.5 percent from their 2015 levels. “Retail food prices have remained flat or decreased for seven of the first nine months in 2016,” said the report. But “food away from home,” the category for restaurant and carry-out meals, is expected to rise by 3 percent, slightly above its historical average.
USDA economist Annemarie Kuhns said the record-high meat prices of 2014 are a factor in today’s lower-than-normal food prices. Cattle and hog producers expanded herds, resulting in increased meat supplies at lower retail prices. One-tenth of grocery spending is on beef and pork, so lower meat prices mean a lower total at the checkout counter.
“There are other factors that come into play,” said Kuhns. Low petroleum prices mean lower costs in producing, processing and transporting food. The strong U.S. dollar discourages imports and makes foreign-grown foods more competitive, so U.S. prices stay low.
If USDA’s forecast proves true, the 1 percent rise in food inflation would be the smallest since 0.8 percent in 2010 and second-lowest since recordkeeping began in 1974. USDA’s records for grocery prices — “food at home” — date from 1948, and the last year with price deflation was 1967, with a 0.3 percent decline. Over the past 20 years, food inflation was an average 2.6 percent and grocery prices rose by an average 2.5 percent.
Beef prices are forecast to fall by 6 percent this year and by a modest 1.5 percent in 2017; prices usually rise by 4.5 percent annually. Favorable pasture conditions and lower feed prices have allowed producers to feed cattle to heavier slaughter weights and retain more cattle for breeding.
Producer price indices, which gauge prices paid to domestic producers for their goods, declined during September, “an indication that lower-than-average price increases at the retail level could be coming,” said USDA.
Americans spend 12.6 percent of their disposable income on food, the third-largest category of spending after housing and transportation. “Typically, food price inflation moves in the same direction as economy-wide inflation but their magnitudes may vary,” write Kuhns and colleague David Levin in the USDA magazine Amber Waves. “More recently, food price inflation has outpaced economy-wide inflation in seven of the last nine years.”