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Food Supply Chain Forecast: Food Prices Rising Faster than Inflation

Oct 27, 2022 11:12:00 AM / by FreshByte Software

The September 2022 Consumer Price Index and Producer Price Index numbers show that food prices are continuing to rise month-over-month more than three times faster than the general U.S. economy inflation rate.

“The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, increased by 0.2 percent from August 2022 to September 2022 and was up 8.2 percent from September 2021,” says the USDA Economic Research Service (ERS). “The CPI for all food increased 0.7 percent from August 2022 to September 2022, and food prices were 11.2 percent higher than in September 2021.”

Food eaten at home is increasing faster than for costs of eating out:

  • The food-at-home (grocery store or supermarket food purchases) CPI increased by 0.6 percent from August 2022 to September 2022 and was 13.0 percent higher than in September 2021.

  • The food-away-from-home (restaurant purchases) CPI increased by 0.9 percent in September 2022 and was 8.5 percent higher than in September 2021.

An official with the Food Marketing Institute, which represents major supermarket chains, told Agri-Pulse that the food price increases were linked to “spikes in costs due to labor, lower capacity disruptions, transportation demands, and global conflicts.”

The Kansas City Fed had earlier reported that food price increases were not “driven by commodity process but by an increase in consumer spending on food at home and increases in costs along the supply chain.”

Food Prices Increases Should Slow Down in 2023

The ERS says that food prices are expected to be above the increases in 2020 and 2021.

“In 2022, all food prices are predicted to increase between 9.5 and 10.5 percent, food-at-home prices are predicted to increase between 11.0 and 12.0 percent, and food-away-from-home prices are predicted to increase between 7.0 and 8.0 percent,” says the ERS.

The good news from ERS is that they expect food prices to rise more slowly in 2023 than this year, but that prices will still be above historical average rates.

“In 2023, all food prices are predicted to increase between 3.0 and 4.0 percent, food-at-home prices are predicted to increase between 2.5 and 3.5 percent, and food-away-from-home prices are predicted to increase between 4.0 and 5.0 percent,” says the ERS.

Recent Historical Overview of Food Prices

Historically (between the 1970s and 200s), food-at-home prices and food-away-from-home prices increased, and decreased, on a similar path.

“Since 2009, however, their rates of growth have mostly diverged; while food-at-home prices deflated in 2016 and 2017, monthly food-away-from-home prices have been rising consistently since then,” says the ERS.

Why the divergence?

The ERS surmises it is partly due to differences between the costs of serving prepared food at restaurants and retailing food in supermarkets and grocery stores.

Recent food price trends:

  • In 2020, food-at-home prices increased by 3.5 percent and food-away-from-home prices by 3.4 percent.

  • The convergence was largely driven by a rapid increase in food-at-home prices, while food-away-from-home price inflation remained within 0.3 percentage points of the 2019 inflation rate.

  • In 2021, food-at-home prices increased by 3.5 percent and food-away-from-home prices increased by 4.5 percent. The CPI for all food increased an average of 3.9 percent in 2021.

  • Of all the CPI food-at-home categories tracked, the beef and veal category had the largest relative price increase (9.3 percent) and the fresh vegetables category the smallest (1.1 percent).

  • No food categories decreased in price in 2021 compared with 2020.

Look Ahead: CPI Forecast Changes This Month for Food

As can be expected, no food price categories were revised downward, while the ranges for six food categories and four aggregate categories were reviewed upward this month.

“In 2022, all food prices are now predicted to increase between 9.5 and 10.5 percent, food-at-home prices are now predicted to increase between 11.0 and 12.0 percent, and food-away-from-home prices are predicted to increase between 7.0 and 8.0 percent,” reported the ERS.

Some of the highlights:

  • Pork prices increased by 1.1 percent in September 2022, despite high domestic pork production and low demand for U.S. pork from Asia. Pork prices are now predicted to increase between 8.5 and 9.5 percent in 2022.

  • Retail egg prices decreased by 3.5 percent in September 2022 but were 30.5 percent higher than in September 2021. Egg prices are now predicted to increase between 26.5 and 27.5 percent in 2022.

  • Fresh vegetable prices increased by 1.7 percent in September 2022 following a 1.0 percent increase in August 2022, reaching a 9.2 percent increase between September 2021 and September 2022. Fresh vegetable prices are now predicted to increase between 5.5 and 6.5 percent in 2022.

  • Processed fruits and vegetables and the aggregate category of fruits and vegetables also increased by 1.6 and 1.4 percent, respectively. Processed fruit and vegetable prices are predicted to increase between 11.0 and 12.0 percent, and prices for the aggregate category of fruits and vegetables are predicted to increase between 7.5 and 8.5 percent in 2022.

  • Following large price increases in January through September 2022, forecast ranges for sugar and sweets, and nonalcoholic beverages have been adjusted upward. In 2022 compared with 2021, prices for sugar and sweets are now predicted to increase between 9.5 and 10.5 percent and nonalcoholic beverages prices are predicted to increase between 10.0 percent and 11.0 percent.

PPI for Food Forecast Changes This Month

The ERS reports that the PPI forecast ranges for farm-level eggs, wholesale fats and oils, and farm-level vegetables were revised upward this month.

Meanwhile, forecast ranges for wholesale beef, wholesale poultry, and farm-level milk were revised downward.

Highlights of the forecasted changes:

  • Wholesale beef prices declined 5.5 percent in September 2022, 23.0 percent lower than in September 2021. However, prices remain historically elevated, and the year-to-date average for 2022 remains 21.6 percent above the average for 2020. Wholesale beef prices are predicted to change between -3.0 and 0.0 percent in 2022.

  • Wholesale poultry prices fell 7.8 percent in September 2022, while farm-level egg prices jumped 12.1 percent and are 120.4 percent higher than in September 2021. Wholesale poultry prices are now predicted to increase between 19.0 and 22.0 percent in 2022. Farm-level egg prices are now predicted to increase between 113.0 and 116.0 percent in 2022.

  • Farm-level milk prices decreased by 6.0 percent in September 2022 but remain at 27.5 percent above September 2021 prices. Farm-level milk prices are now predicted to increase between 30.0 and 33.0 percent in 2022.

  • Wholesale fats and oils prices decreased by 0.7 in September 2022, a much slower decrease than in July and August. Wholesale fats and oils prices are now predicted to increase between 21.0 and 24.0 percent in 2022.

  • Farm-level vegetable prices jumped by 15.7 percent in September 2022, unrelated to seasonal factors, an increase of 40.2 percent over September 2021. Farm-level vegetable prices are now predicted to increase between 25.0 and 28.0 percent in 2022.

Tags: Inflation, Food Trends

FreshByte Software

Written by FreshByte Software

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