Food Price Outlook, 2017
This page provides the following information for May 2017:
- Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, was up 0.1 percent from April to May 2017 and is 1.9 percent above the May 2016 level. The CPI for all food also rose 0.1 percent from April to May, and food prices were 0.9 percent higher than the May 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 was up 0.2 percent in May and is 2.3 percent higher than May 2016; and
- The food-at-home (grocery store or supermarket food items) CPI rose 0.1 percent from April to May but is still 0.2 percent lower than last May.
Food-at-home prices declined overall in 2016, falling 1.3 percent below 2015 levels. This marks the first annual decline in supermarket prices since 1967. Looking at specific retail food categories, prices declined 21.1 percent for eggs, 6.3 percent for beef and veal, 4.1 percent for pork, and 2.3 percent for dairy and related products. However, not all foods declined in price—fresh fruit prices rose 2.2 percent and other foods rose 0.3 percent compared with 2015 prices.
The overall decline in retail food prices was due to several factors: increased production for many commodities, lower transportation costs as a result of deflated oil prices, and a strong U.S. dollar. A strong dollar affects domestic prices as it makes U.S. goods less desirable to foreign markets, leaving more potential exports on the domestic market.
While food-at-home prices declined in 2016, prices for food away from home increased 2.6 percent. 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. 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.
Looking ahead, supermarket prices are expected to rise between 0.0 and 1.0 percent in 2017. Despite declining prices in 2016, poultry, fish and seafood, and dairy prices are expected to rise in 2017. 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. In particular, drought or flood conditions throughout the U.S. could have large and lasting effects on fruit, vegetable, dairy, and egg prices. Also, a stronger U.S. dollar could continue to make the sale of domestic food products overseas more difficult. This would increase the supply of foods on the domestic market, placing downward pressure on retail food prices.
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.
Egg prices decreased 4.6 percent from April to May and are 14.5 percent below May 2016 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. As the industry recovered from the Highly Pathogenic Avian Influenza (HPAI) outbreak of 2015, egg production levels increased to nearly pre-flu levels, and egg prices fell 21.1 percent in 2016. 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 an additional 6.0 to 5.0 percent in 2017.
Prices for dairy products decreased 0.4 percent in May but are 0.4 percent higher than they were in May 2016. While retail milk prices increased month-over-month—up 0.2 percent from April to May—cheese and related product prices fell 0.5 percent, and ice cream and related product prices also fell 1.2 percent. Retail dairy prices declined 2.3 percent from 2015 to 2016, following global patterns. However, dairy imports have declined from very high levels in the first quarter of 2016, and exports are expected to strengthen for products with high skim-milk content (for example, nonfat dry milk and whey products). Domestic demand for most dairy products has recently been below previous annual levels but is expected to recover during the year. ERS expects retail dairy product prices to rise between 0.5 and 1.5 percent in 2017.
Fats and oils prices rose 0.7 percent from April to May and are up 1.1 percent since May 2016. Butter prices increased 2.0 percent from April to May, salad dressing prices rose 1.3 percent, and peanut butter prices were up 0.8 percent. ERS predicts fats and oils prices to decrease an additional 1.0 to 0.0 percent in 2017.
Key Month-Over-Month Changes in the Food CPI
Beef and veal prices increased 0.2 percent from April to May but are still 4.2 percent lower than this time last year. The increased pace of cattle slaughter, especially during the second half of 2016, coupled with increased carcass weights, has resulted in higher year-over-year beef production. This higher production and the large supplies of beef held in cold storage have resulted in downward pressure on prices throughout the cattle and beef complex. Prices of both feeder and fed cattle trended lower for most of 2016. Although beef production is now expected to be lower in 2017 than originally forecast, it is still expected to exceed the 2016 level. ERS predicts beef and veal prices to decrease an additional 2.5 to 1.5 percent in 2017.
In May, pork prices rose 0.3 percent from the previous month. Despite declining bacon and ham prices, pork chop prices increased 2.9 percent in May. Retail pork prices fell in 2016, largely due to ample supplies of other animal proteins available for domestic consumption. Lower beef prices are most likely adding pressure to lower pork prices. USDA forecasts a 4.9-percent increase in pork production in 2017, and large pork supplies are expected to drive retail prices down an additional 2.0 to 1.0 percent in 2017.
Prices for poultry rose 0.6 percent from April to May but are 0.1 percent lower than last year. Despite high broiler production, many chicken broilers have low weights which, along with larger birds demanding higher prices, has contributed to higher retail poultry prices. While prices are expected to increase at the retail level, the increased prices are still expected to be lower than the 20-year historical average of 2.1 percent. ERS predicts prices to rise between 0.5 and 1.5 percent in 2017.
Prices for fresh fruits increased 0.4 percent from April to May and are up 0.3 percent compared with May 2016. The largest monthly increase was for oranges and tangerines, increasing 3.4 percent from April to May; the price increase was the result of lower domestic production. ERS expects fresh fruit prices to increase 0.0 to 1.0 percent in 2017. Fresh vegetable prices fell 0.4 percent from April to May, but prices are still 3.0 percent higher than May 2016. ERS expects fresh vegetable prices to decrease between 1.5 and 0.5 percent in 2017. Factors, such as a stronger U.S. dollar, low oil prices, and seasonal availability have placed downward pressure on retail fresh produce prices.
In May, prices for cereals and bakery products increased 0.2 percent compared with the previous month but are 0.2 percent lower than they were in May 2016. Prices for breakfast cereal rose 0.1 percent, retail rice prices fell 0.3 percent, and prices for flour and prepared flour mixes rose 2.0 percent from April to May. Due to an increase in farm-level wheat prices and a decreased forecast of wheat imports, ERS expects cereals and bakery products prices to rise between 0.5 to 1.5 percent in 2017.
Prices for nonalcoholic beverages increased 0.1 percent from April to May and are up 0.9 percent since May 2016. Carbonated beverage prices increased 0.4 percent from April to May, but prices for coffee rose 1.2 percent over the same period. ERS predicts nonalcoholic beverage prices to increase 0.0 to 1.0 in 2017.
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. Unprocessed foods and feeds posted a monthly increase of 3.5 percent from April to May, prices for processed foods and feeds rose 0.9 percent, but finished consumer foods were unchanged 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 May, cattle prices increased 6.8 percent and are up 2.4 percent since this time last year. Wholesale beef prices increased in May, rising 12.6 percent, and are also up 2.4 percent from the previous year. ERS expects farm-level cattle prices to rise 2.0 to 3.0 percent in 2017, and wholesale beef prices are expected to increase 0.0 to 1.0 percent.
Wholesale pork prices rose 1.7 percent from April to May but are 4.4 percent lower than this time last year. Overall, pork production is higher, placing downward pressure on prices in 2016—wholesale pork prices declined 2.1 percent. However, ERS predicts wholesale pork prices to decrease 2.0 to 1.0 percent in 2017.
Prices for farm-level eggs decreased 13.9 percent from April to May. Price levels are 0.2 percent higher than May 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. In 2015, prices were also affected by HPAI, which reduced the count of table-egg-laying birds in many Midwestern and Pacific Northwestern States. As the industry recovered, farm-level egg prices decreased 59.1 percent in 2016. However, ERS predicts farm-level egg prices to increase 0.0 to 1.0 percent in 2017.
Farm-level soybean prices increased 4.2 percent from April to May and are 10.5 percent below the May 2016 price level. Wholesale fats and oils prices decreased on the month, falling 2.6 percent in May, but are 4.9 percent higher than May 2016 price levels. Farm-level soybean prices rose 2.9 percent in 2016 and are expected to change between -0.5 to 0.5 percent in 2017. Prices for wholesale fats and oils decreased 0.8 percent in 2016, but ERS expects prices to rise 3.0 to 4.0 percent in 2017.
Farm-level fruit prices fell 10 percent in May but are 9.3 percent higher than in May 2016. Farm-level vegetable prices also fell in May, decreasing 16.9 percent. Farm-level vegetable prices are now 6.8 percent higher than they were this time last year. Farm-level fruit prices are expected to increase 1.0 to 2.0 percent in 2017. Farm-level vegetable prices are expected to decrease 5.0 to 4.0 percent in 2017.