Food Price Outlook, 2017-18
This page provides the following information for October 2017:
- Consumer Price Index (CPI) for Food (not seasonally adjusted)
- Producer Price Index (PPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, was down 0.1 percent from September to October 2017 and is 2.0 percent above the October 2016 level. The CPI for all food rose 0.1 percent from September to October, and food prices were 1.3 percent higher than the October 2016 level. The degree of food price inflation varies depending on whether the food was purchased for consumption away from home or at home.
- The food-away-from-home (restaurant purchases) CPI rose 0.1 percent in October and is 2.3 percent higher than October 2016; and
- The food-at-home (grocery store or supermarket food items) CPI was up 0.2 percent from September to October and is 0.6 percent higher than last October.
Food-at-home prices and food-away-from-home prices have recently diverged. Restaurant prices have been rising consistently month-over-month due, in part, to differences in the cost structure of restaurants versus supermarkets or grocery stores. Prices at food-at-home outlets have posted lower year-over-year price increases. Restaurant prices primarily comprise labor and rental costs with only a small portion going toward food. For this reason, decreasing farm-level and wholesale food prices have had less of an impact on restaurant menu prices.
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.
In 2017, supermarket prices are expected to change between -0.25 and 0.75 percent. 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. Other factors affecting retail food prices in 2017 include increased production of certain commodities and moderate increases in energy and transportation costs.
Looking ahead to 2018, retail food prices are expected to rise between 1.0 to 2.0 percent. While fats and oils and processed fruits and vegetables could potentially decline in price, prices for meats, eggs, and dairy are expected to increase. Due to deflation in 2016 and for over half of 2017, expected price increases would still leave overall price levels in 2018 lower than in 2015. These forecasts are based on an assumption of normal weather conditions throughout the remainder of the year; however, severe weather or other unforeseen events could potentially drive up food prices beyond the current forecasts.
Changes to Food Category CPI Forecasts
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures.
Beef and veal prices decreased 1.0 percent from September to October but are 0.9 percent higher than this time last year. As of October 2017, the U.S. cattle herd has expanded to its largest size since September 2008. Relatively large cattle placements in feedlots in the first half of 2017, as well as more cattle available outside of feedlots, has increased the forecast for commercial beef production. This has resulted in downward pressure on prices throughout the cattle and beef complex. ERS predicts beef and veal prices to decrease 1.75 to 0.75 percent in 2017 but increase 1.5 to 2.5 percent in 2018.
Prices for poultry rose 0.2 percent from September to October and are 0.3 percent higher than last year. Despite high broiler production, many broilers have low weights which, along with larger birds demanding higher prices, has contributed to higher retail poultry prices. Other poultry (including turkey) rose 0.4 percent from September to October. However, as many retailers offer discounts on turkeys in November, prices are expected to decline slightly for the Thanksgiving holiday. While prices may increase at the retail level, price increases are still expected to be lower than the 20-year historical average of 2.1 percent. ERS predicts prices to change between -0.25 and 0.75 percent in 2017 and to increase an additional 0.25 to 1.25 percent in 2018.
Egg prices increased 5.4 percent from September to October and are 5.2 percent above October 2016 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. In 2017, more egg-laying birds and an increased number of eggs per hen has continued to place downward pressure on prices. ERS expects egg prices to decrease 9.0 to 8.0 percent in 2017 and increase 4.0 to 5.0 percent in 2018.
October prices for dairy products increased 0.3 percent since September but are 0.5 percent lower than they were in October 2016. Retail milk prices increased 0.3 percent, cheese and related product prices rose 1.0 percent, and ice cream and related product prices increased 0.2 percent from September to October. Dairy imports have declined from relatively high levels in the first quarter of 2016. Dairy exports have strengthened and are expected to continue rising, especially for whey products. Although domestic demand for most dairy products was relatively weak in 2016, it is expected to recover during the year. ERS expects retail dairy product prices to change between -0.25 and 0.75 percent in 2017 and to increase an additional 1.5 to 2.5 percent in 2018.
Prices for fresh fruits rose 1.4 percent from September to October and are up 1.6 percent compared with October 2016. While apple prices were lower in October, citrus prices rose 3.5 percent and other fresh fruit prices were 3.2 percent higher than in September. ERS expects fresh fruit prices to change between -0.25 to 0.75 percent in 2017 and to increase 3.0 to 4.0 percent in 2018. Fresh vegetable prices also increased from September to October, rising 1.3 percent, and are 3.0 percent higher than in October 2016. ERS expects fresh vegetable prices to decrease between 1.0 and 0.0 percent in 2017 but to change between -0.5 to 0.5 percent in 2018. Factors, such as a stronger U.S. dollar, low oil prices, and seasonal availability have placed downward pressure on retail fresh produce prices.
In October, prices for cereals and bakery products decreased 0.3 percent compared with the previous month and are 0.6 percent lower than they were in October 2016. Prices for bread fell 0.6 percent, and flour and prepared flour mixes decreased 0.9 percent from September to October. ERS expects cereals and bakery products prices to change between -0.5 to 0.5 percent in 2017 and to increase 3.0 to 4.0 percent in 2018.
Key Month-Over-Month Changes in the Food CPI
In October, pork prices were flat compared with the previous month, but prices are 3.6 percent higher than in October 2016. While pork chop prices rose 0.3 percent and ham prices increased 2.9 percent in October, breakfast sausage and bacon prices decreased 1.5 percent. Lower beef prices are most likely adding pressure to lower pork prices. Although USDA forecasts a 4.9-percent increase in pork production in 2017, strong consumer demand for pork (particularly for cuts such as bacon) will likely hold retail prices to between 0.0 to 1.0 percent above 2016 prices and increase pork prices an additional 0.75 to 1.75 percent in 2018.
Fats and oils prices were flat from September to October but are 1.5 percent higher than October 2016. In October, while prices for other fats and oils (including peanut butter) rose 0.5 percent, prices for butter and margarine declined 0.9 percent, and salad dressing prices remained flat. ERS predicts fats and oils prices to increase between 0.25 to 1.25 percent in 2017 and to decrease 2.5 to 1.5 percent in 2018.
Prices for nonalcoholic beverages increased 0.3 percent from September to October and are up 0.7 percent since October 2016. Carbonated beverage prices increased 0.7 percent from September to October; however, prices for coffee fell 0.5 percent over the same period. ERS predicts nonalcoholic beverage prices to increase 0.0 to 1.0 in 2017 and an additional 0.0 to 1.0 percent in 2018.
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—unprocessed foodstuffs and feedstuffs (formerly called crude foodstuffs and feedstuffs), processed foods and feeds (formerly called 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.
The intermediate and final demand 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 systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
ERS does not currently forecast industry-level PPIs for unprocessed, processed, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Prices for unprocessed foods and feeds posted a monthly decrease of 0.6 percent from September to October; however, prices for processed foods and feeds rose 0.3 percent, and prices for finished consumer foods rose 0.3 percent over the same period.
Inflationary pressures lessened for farm-level cattle and wholesale beef prices in 2016 and are expected to continue to be low in 2017. In October, cattle prices increased 2.8 percent and are up 11.2 percent since this time last year. Wholesale beef prices also increased in October, rising 4.5 percent, and are up 4.8 percent from the previous year. ERS expects farm-level cattle prices to decline 3.5 to 2.5 percent in 2017 and to decrease an additional 6.0 to 5.0 percent in 2018. Wholesale beef prices are expected to decrease 1.5 to 0.5 percent in 2017 and to decrease 5.0 to 4.0 percent in 2018.
Wholesale pork prices fell 8.0 percent from September to October but are 0.1 percent higher than this time last year. Overall, pork production is higher, placing downward pressure on prices—wholesale pork prices declined 2.1 percent in 2016. However, ERS predicts wholesale pork prices to increase 3.0 to 4.0 percent in 2017 and 1.0 to 2.0 percent in 2018.
Prices for farm-level eggs increased an additional 17.4 percent from September to October. Price levels are 178.0 percent higher than October 2016 levels. Egg prices are among the most volatile of food prices, typically peaking in the fourth quarter of the year and then falling in the first quarter of the new year. ERS predicts farm-level egg prices to increase 20.0 to 21.0 percent in 2017 and to increase an additional 25.0 to 26.0 percent in 2018.
Farm-level soybean prices increased 0.3 percent from September to October and are 0.1 percent above the October 2016 price level. Wholesale fats and oils prices increased on the month, rising 1.7 percent in October, and are 4.0 percent higher than October 2016 price levels. Farm-level soybean prices are expected to decrease 2.0 to 1.0 percent in 2017 and to rise 3.5 to 4.5 percent in 2018. ERS expects prices for wholesale fats and oils to rise 3.0 to 4.0 percent in 2017 but to decrease 2.0 to 1.0 percent in 2018.
Farm-level fruit prices fell 6.9 percent in October but are 4.9 percent higher than in October 2016. Farm-level vegetable prices rose in October, increasing 12.1 percent, and prices are 25.2 percent higher than they were this time last year. Farm-level fruit prices are expected to increase 5.0 to 6.0 percent in 2017 but to decrease 6.0 to 5.0 percent in 2018. Farm-level vegetable prices are expected to increase 3.0 to 4.0 percent in 2017 and to decrease 8.0 to 7.0 percent in 2018.
Farm-level wheat prices rose 0.1 percent from September to October and are 20.6 percent higher than they were in October 2016. Farm-level price increases have also affected wholesale wheat flour prices, which were flat from September to October but rose 2.6 percent since October 2016. ERS expects farm-level wheat prices to increase 8.5 to 9.5 percent in 2017 and an additional 12.0 to 13.0 percent in 2018. Wholesale wheat flour prices are also expected to increase in 2017, but not to the same extent, and ERS forecasts a 0.5 to 1.5 percent increase in 2017. However, wholesale wheat flour prices are expected to decline 4.0 to 3.0 percent in 2018.