Thanks to the strong dollar, food inflation is standing still this year following the first instance, in 2016, of food deflation since the 1960s, says the USDA. In a new forecast, USDA economists say overall supermarket price levels in 2018 could be lower than they were in 2015.
Retail food prices ordinarily increase by about 2.2 percent annually, so the current quiescent period is exceptional. The monthly Food Price Outlook set this year’s retail food price increase at zero compared to 2016, when prices fell by 1.3 percent.
“Inflation has been lower than average due, in part, to a stronger U.S. dollar, which makes imported foods relatively less expensive and the sale of domestic products overseas more difficult,” says the USDA. The end result is a larger domestic supply of food, holding down prices.
For 2018, the USDA says, declines are expected in the supermarket price for processed fruits and vegetables and for fats and oils, which account for nearly 7 percent of grocery outlays. Prices for meats, eggs, and dairy — a quarter of retail food spending — are expected to rise. “Due to deflation in 2016 and for over half of 2017, expected price increases would still leave overall price levels in 2018 lower than in 2015,” says the USDA.
Americans spend nearly 58 cents of the food dollar on “food at home,” meaning supermarket items, and 42 cents on “food away from home,” such as restaurant meals and carry-out food.
The outlook for the two categories has diverged in recent months. “Restaurant prices have been rising consistently month over month due, in part, to differences in cost structures,” says the USDA’s Economic Research Service. Labor and rent account for a large share of restaurants’ operating costs, “with only a small portion going toward food,” says the USDA. “Prices at food-at-home outlets have posted lower year-over-year price increases.”
Restaurant prices are forecast to rise by 2.5 percent this year and in 2018, while supermarket prices would rise by 1.5 percent in 2018 following this year’s plateau.