Food Price Outlook, 2018
This page provides the following information for December 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, fell 0.1 percent from November to December 2017 and is 2.1 percent above the December 2016 level. The CPI for all food rose 0.1 percent from November to December, and food prices were 1.6 percent higher than the December 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 0.2 percent in December and is 2.5 percent higher than December 2016; and
- The food-at-home (grocery store or supermarket food items) CPI was up 0.1 percent from November to December and is 0.9 percent higher than last December.
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 decreased for the second year in a row, falling 0.2 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; shrinking retailer margins may also have affected 2017 retail food prices.
In 2018, retail food prices are expected to rise between 1.0 to 2.0 percent. 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. Due to deflation in 2016 and 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 increased 0.5 percent from November to December and are 3.5 percent higher than this time last year. Greater year-over-year cattle placements in feedlots in the fourth quarter of 2017 indicate that the number of cattle outside of feedlots available for placement remains large. Thus, the forecast is higher for commercial beef production in 2018 due to slightly higher expected carcass weights combined with more cattle being put on the market and greater expected slaughter. Although cattle prices have been stronger than previously expected in late 2017, prices throughout the cattle and beef complex in 2018 are likely to remain below levels in 2017. In 2017, beef and veal prices decreased 1.2 percent but are expected to rebound, increasing by 1.5 to 2.5 percent in 2018.
In December, pork prices fell 1.5 percent from the previous month, but prices are 3.1 percent higher than in December 2016. 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) held retail prices above 2016 prices, increasing 0.6 percent. In 2018, pork prices are expected to change between -0.5 and 0.5 percent.
Prices for poultry rose 1.6 percent from November to December and are 2.5 percent higher than last year. While prices may increase at the retail level, price increases are still expected to be lower than the 20-year historical average of 2.0 percent. Poultry prices rose 0.2 percent in 2017 and are expected to increase an additional 1.5 to 2.5 percent in 2018.
In December, prices for cereals and bakery products increased 0.1 percent compared with the previous month but are 0.6 percent lower than they were in December 2016. With the baking season in full swing, prices for flour and prepared flour mixes decreased 0.3 percent from November to December. In 2017, cereals and bakery products prices fell 0.5 percent, and ERS expects prices to increase 2.0 to 3.0 percent in 2018.
Key Month-Over-Month Changes in the Food CPI
Egg prices increased 7.3 percent from November to December and are 11.6 percent above December 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. Egg prices decreased 9.5 percent in 2017 but are expected to increase 4.0 to 5.0 percent in 2018.
Dairy product prices were flat from November to December but fell 0.5 percent compared with December 2016. Retail milk prices increased 0.4 percent, cheese and related product prices fell 0.5 percent, and ice cream and related product prices increased 1.0 percent from November to December. Dairy imports for January through November 2017 were significantly lower than January through November 2016. Dairy exports have strengthened and are expected to continue rising, especially for products with high skim-solid content. Although domestic demand for most dairy products was relatively weak in 2016, it is expected to continue its recovery. Retail dairy product prices rose 0.1 percent in 2017, and ERS expects prices to increase an additional 1.5 to 2.5 percent in 2018.
Fats and oils prices rose 0.2 percent from November to December and are 1.5 percent higher than December 2016. While prices for butter and margarine were flat, salad dressing prices rose 1.2 percent in December. In 2017, fats and oils prices rose 0.8 percent. However, ERS expects prices to decrease 2.5 to 1.5 percent in 2018.
Prices for fresh fruits fell 1.1 percent from November to December but are up 2.1 percent compared with December 2016. While banana prices rose in December, citrus prices fell 6.1 percent and apple prices were 2.4 percent lower than in November. Fresh fruit prices rose 0.5 percent in 2017, and ERS expects prices to increase 3.0 to 4.0 percent in 2018. Fresh vegetable prices increased from November to December, rising 1.3 percent, and are 3.5 percent higher than in December 2016. Fresh vegetable prices decreased 0.1 percent in 2017 but are expected 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.
Prices for nonalcoholic beverages decreased 0.2 percent from November to December and are flat compared with December 2016. Carbonated beverage prices decreased 0.9 percent from November to December, and prices for coffee rose 1.5 percent over the same period. Nonalcoholic beverage prices increased 0.2 percent in 2017 and are expected to increase 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 0.1 percent from November to December, prices for processed foods and feeds fell 0.4 percent, and prices for finished consumer foods fell 0.5 percent over the same period. Declining prices at these earlier stages of production may indicate that prices could continue to decline at the retail level.
Inflationary pressures continued to lessen for farm-level cattle and wholesale beef prices in 2017. In December, cattle prices decreased 0.2 percent but are up 6.1 percent since this time last year. Wholesale beef prices also decreased in December, falling 7.4 percent, but are up 3.3 percent from the previous year. Farm-level cattle prices declined 1.7 percent in 2017 and are expected to decrease an additional 3.5 to 2.5 percent in 2018. Wholesale beef prices fell 0.4 percent in 2017 and are expected to decrease 4.0 to 3.0 percent in 2018.
Wholesale pork prices rose 0.3 percent from November to December and are 4.0 percent higher than this time last year. Wholesale pork prices increased 3.2 percent in 2017 and are expected to increase an additional 0.5 to 1.5 percent in 2018.
Prices for farm-level eggs increased an additional 13.3 percent from November to December. Price levels are 77.1 percent higher than December 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. Farm-level egg prices increased 23.6 percent in 2017 and are expected to increase an additional 17.0 to 18.0 percent in 2018.
Farm-level soybean prices increased 1.3 percent from November to December but are 5.2 percent below the December 2016 price level. Wholesale fats and oils prices decreased on the month, falling 0.4 percent in December, but are 1.4 percent higher than December 2016 price levels. Farm-level soybean prices decreased 2.3 percent in 2017 but are expected to rise 3.5 to 4.5 percent in 2018. On the other hand, prices for wholesale fats and oils rose 4.2 percent in 2017 but are expected to decrease 2.0 to 1.0 percent in 2018.
Farm-level fruit prices fell 3.6 percent in December but are 6.5 percent higher than in December 2016. Farm-level vegetable prices also declined in December, decreasing 7.8 percent, but prices are 28.2 percent higher than they were this time last year. Farm-level fruit prices increased 6.6 percent in 2017 but are expected to decrease 5.0 to 4.0 percent in 2018. Farm-level vegetable prices increased 6.4 percent in 2017 and are expected to decrease 8.0 to 7.0 percent in 2018.
Farm-level wheat prices fell 3.9 percent from November to December but are 12.6 percent higher than they were in December 2016. Prices for wholesale wheat flour also declined, falling 2.3 percent from November to December, but prices rose 3.5 percent since December 2016. Farm-level wheat prices increased 7.8 percent in 2017 and are expected to rise an additional 2.0 to 3.0 percent in 2018. Wholesale wheat flour prices also increased in 2017, but not to the same extent, rising 1.6 percent. However, wholesale wheat flour prices are expected to decline 4.0 to 3.0 percent in 2018.