The strong dollar and low oil prices are slowing food price inflation to its lowest rate in six years, a barely noticeable 1.5 percent this year, says the Agriculture Department. And, looking ahead, USDA economists say 2017 will be the third year in a row that food inflation is far below normal.
Food prices usually rise 2.6 percent annually. They rose 1.9 percent last year and are forecast to rise 2 percent next year. Food inflation will be markedly low this year due in part to falling prices for beef, pork and poultry, which account for 10 cents of every $1 in food spending. Prices for milk and other dairy products — 6 cents of the food dollar — also are down from 2015 levels.
Americans spent an average $6,759 on food, or 12.6 percent of their disposable income, during 2014, says the Labor Department; 2014 is the most recent year for which data are available. Total expenditures on food, whether at the grocery store, restaurants or fast-food outlets, top $1.3 trillion a year, so low food inflation saves consumers billions of dollars.
“Lower transportation costs due to deflated oil prices as well as the strength of the U.S. dollar have placed additional downward pressure on food prices in the first half of 2016, resulting in more goods on the U.S. market at a lower price,” said USDA’s monthly Food Price Outlook.
Meat and dairy prices are expected to rise a moderate 2-2.5 percent in 2017, a factor in the USDA’s forecast of slightly higher food prices in the new year. “Also, a stronger U.S. dollar could continue to make the sale of domestic food products overseas more difficult. This would increase the supply of foods on the domestic market, placing downward pressure on retail food prices,” said the USDA.
Poultry prices are 3.4-percent lower at present than they were a year ago. As a result, USDA forecasts a 0.5-percent decline in prices for the year. Egg prices, among the most volatile food prices, are 27-percent lower than a year ago, reflecting the recovery from the bird flu epidemic of 2015; USDA says egg prices will post an overall decline of 12.5 percent for the year. Both forecasts, for poultry and eggs, are lower than USDA estimates made in June.
Fruit and vegetable prices also are rising slower than USDA predicted a month ago. The agency now forecasts fruit and vegetables will rise 2 percent this year, 1 percentage point less than its June estimate.