Food Price Outlook, 2013-14
This page provides the following information for October 2013:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.3 percent from September to October and is 1 percent above the October 2012 level. The CPI for all food increased 0.1 percent from September to October, was unchanged from August to September, and is now 1.3 percent above the October 2012 level.
- The food-at-home (grocery store food items) CPI was up 0.2 percent in October and is up 0.8 percent from last October. The food-at-home CPI has been flat thoughout 2013, falling 0.1 percent since January; and
- The food-away-from-home (restaurant purchases) CPI increased 0.1 percent in October and is up 1.9 percent from last October.
ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly. Despite the severe drought in the Midwest, retail food prices were mostly flat in 2012. Prices rose for beef and veal, poultry, fruit, and other foods in 2012; however, prices fell for pork, eggs, vegetables, and nonalcoholic beverages. For the remaining food categories, prices were mostly unchanged. The drought affected prices for corn and soybeans as well as other field crops which, in turn, drove up retail food prices in the final quarter of 2012 and the first half of 2013. For more information, see U.S. Drought 2012: Farm and Food Impacts.
Based on current conditions, ERS's 2013 inflation forecast predicts increases of 1.5 to 2.5 percent for all food prices, with food-at-home prices predicted to increase 1.0 to 2.0 percent. This means that prices are likely to increase less than they did in 2012 and that annual inflation should be lower than the 20-year historical average of 2.8 percent. The impact of the 2012 drought on retail food prices has been less than initially forecast. The inflationary pressure of the drought has been offset by factors such as decreased exports of many U.S. agricultural products, a stronger U.S. dollar, low energy price inflation, and decreased prices for many commodities unaffected by the drought.
Looking ahead to 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm. Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. The food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels. This forecast is based on an assumption of normal weather conditions; however, a resurgence of the drought in key agricultural areas or other severe weather events could potentially drive up food prices beyond the current forecasts.
See Changes in Food Price Indexes, 2011 through 2014 .
Changes to Food Category CPI Forecasts
Due to continued increases in chicken prices, ERS has revised its outlook for the poultry CPI upward to 4 to 5 percent in 2013. Demand remains strong for this category as consumers are responding to record high prices for beef and rising pork prices. The poultry CPI increased 0.7 percent from September to October and is up 5.1 percent since this time last year.
Fresh vegetable prices have undergone a period of heavy inflation over the last few months, the second such stretch in 2013. ERS has revised its forecast for fresh vegetables upward to 4 to 5 percent in 2013, as prices continue to remain high compared to the lows of 2012. The fresh vegetable CPI is up 0.5 percent from September to October and is up 6.5 percent since October of 2012.
ERS has revised its forecast for processed fruits and vegetables downward to 0 to 1 percent for the year. Processed fruits and vegetables typically reflect the market price for fresh produce from the previous year, which explains why inflation in this category has been so much lower than that for fresh markets. Processed fruit and vegetable prices are down 1.5 percent from September to October and down 0.5 percent since October of 2012.
The forecast for cereals and bakery products has been revised downward to 1 to 2 percent. The decrease in commodity prices, including wheat, throughout much of 2013 has greatly eased inflationary pressure for prices in this category. The cereals and bakery products CPI decreased 0.2 percent from September to October and is up 0.9 percent from a year ago.
There are no changes to the 2014 CPI forecasts.
Key Month-Over-Month Changes in the Food CPI
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures. Typically, when the food-at-home CPI changes by a small amount from month to month, this masks variation across categories that rose and fell. Fish and seafood prices posted one of the largest gains over the past month, rising 1.1 percent from September to October. This may reflect, in part, increased demand due to the high meat prices consumers have faced throughout the year. Pork prices continued their recent surge, increasing 0.6 percent since September. Pork prices have been recovering from lower prices early in 2013 due to low wholesale prices and a drop in exports. Egg prices increased 1.1 percent, which was mostly seasonal, as evidenced by the fact that egg prices are up only 0.9 percent since last October.
Prices in two of the largest categories of consumer food spending—dairy products and other foods—fell over the past month, helping to explain why the food-at-home CPI posted only a small gain despite the fact that most prices increased. The prices for dairy products fell 0.2 percent, as strong supplies have continued to drive fluid milk prices lower. Prices for other foods, which include a large number of non-perishable products, fell 0.3 percent from in October.
Producer Price Index (PPI) for Food (not seasonally adjusted)
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time; however, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.
ERS does not currently forecast industry-level PPIs for crude, intermediate, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Crude foods and feeds posted a monthly decrease of 0.4-percent, and intermediate foods and feeds posted a monthly decrease of 1.9 percent. Finished consumer foods increased by 0.3 percent from September to October. This suggests that retail food price inflation is unlikely to increase considerably in the coming months.
The stage-of-processing PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food supply systems, movement between the PPI and the CPI typically lags. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
The farm prices for soybeans fell 6.9 percent in October, indicating that the downward trends in prices for oilseeds and for retail fats and oils are poised to continue. Cattle prices rose 5.5 percent from September to October, while wholesale beef prices increased 2.1 percent. These trends suggest that consumers will continue to pay record prices for retail beef products into 2014. Additionally, both wheat and wheat flour prices increased last month—wheat by 4.9 percent and wheat flour by 3.6 percent. These increases support the notion that inflation for bread and cereal prices in the supermarket will pick up in 2014.
See Changes in Producer Price Indexes, 2011 through 2014 .