Grocery prices are down for the second year in a row, the first multi-year run of food deflation since the mid-1950s. In its monthly Food Price Outlook, the USDA credits the strong dollar for the year-on-year decline in grocery prices of 1.3 percent in 2016 and 0.2 percent in 2017; only the seventh and eighth years, respectively, of deflation since World War II.
This year, grocery prices are forecast by USDA economists to rise 1.5 percent, well below the 20-year average of 2.1 percent annually. “While fats and oils, vegetables, pork and processed fruits and vegetables could potentially decline in price, prices for beef and veal, poultry, eggs and dairy are expected to increase,” says the USDA. “Due to deflation in 2016 and 2017, expected price increases would still leave overall price levels in 2018 lower than in 2015.”
Grocery prices fell for three years in a row, from 1953 through 1955, the only instance of a multi-year price decline in USDA records before the 2016-17 streak. Those records began in 1948. Single-year declines occurred in 1949, 1959 and 1967. Otherwise, grocery prices relentlessly increased.
“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 food products overseas more difficult. This could increase the supply of foods on the domestic market, placing downward pressure on retail food prices,” said the Food Price Outlook. Low energy costs also were a factor last year along with larger output of commodities such as meat.
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. Restaurant prices consistently edge upward; the cost of food is small compared to the cost of land and labor. “For this reason, decreasing farm-level and wholesale food pices have had less of an impact on restaurant menu prices,” said the USDA.
Food prices in restaurants will rise 2.5 percent this year, according to the USDA forecasts, close to the 20-year average of 2.7 percent annually.
Overall food prices, combining food-at-home and food-away-from-home, are estimated to climb 2 percent this year, somewhat below the usual 2.4 percent gain.