Food inflation continues to rise, even as pace of growth slows

Dive Brief:

• Food-at-home prices have risen 13.5% over the past year, the largest 12-month increase since March 1979, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index for August. On a monthly basis, food at home prices increased 0.7%, compared to a 1.3% increase in July and 1.0% growth in June.
• The six major food categories tracked by BLS each saw monthly increases in August. The CPI for other food at home — which includes sugars, fats and oils — rose 16.7% over the past 12 months, while cereal and baked goods increased 16.4%, pressured by the Ukraine war and poor growing conditions for wheat.
• While the gasoline price index fell 10.6% in August, the food index has continued to rise on a monthly basis, although at a somewhat slower pace. This is causing consumers to search for new ways to save money, including trading down to less expensive brands.

Dive Insight:

The growth rate of food prices is slowing or plateauing in some categories, such as meat, which saw a monthly increase of 0.5% in July and August, and in dairy, which rose 0.3% after increases topping 1% in June and July.

But for others, inflationary trends show few signs of abating. Weather woes and the Ukraine conflict continue to pressure wheat prices. According to Rabobank’s latest report, there is “no end in sight” to supply issues caused by the war, and La Niña weather patterns have hampered winter wheat production globally. In the U.S., the Great Plains growing region is expected to see another poor growing season, with above-average temperatures and a potential drought through March 2023, Rabobank said.

“Wheat is going to be challenging for some time,” Rob Weisberg, general manager of Incentives at Inmar Intelligence told Food Dive. “You can’t grow it in a moment’s notice. It remains to be seen how reopening of ports in Ukraine will impact its supply.”

In the “other” food at home category, the price index for margarine spiked 7.3% in August. Margarine is typically made using palm oil, which has been a costly ingredient for producers to procure this year due to upheaval in the edible oils market. The price index for fats and oils increased 2.6% in August. 

Consumers are responding to the inflationary pressures by changing where and how they shop, according to Weisberg at Inmar Intelligence. The data firm found that 56% of shoppers said that they are willing to switch retailers to cut costs.

The reduction of gas prices is helping to offset the pressure of higher grocery bills, however. Shoppers are embracing fuel rewards programs at grocery stores to lessen the amount they spend on food, according to Weisberg.

“If people feel better at the pump, it does give them more flexibility on their basket spend at the grocery store,” Weisberg said.

In a note, Neil Saunders, the managing director of GlobalData, said the benefit of inflation cooling is only marginal given the historical costs of the 13.5% annual food-at-home increase. According to a GlobalData survey, 46.9% of consumers said that they are trading down to cheaper grocery food brands, a 4.4-percentage-point increase over the previous month.

“Given [food-at-home] is an essential category that accounts for a large slice of retail spending, such a painful increase is causing a significant squeeze on discretionary income,” Saunders said.